What does Ofgem’s price cap mean for your energy bills?

Millions of energy users could see significant changes to their energy bills in October as the new cap comes into effect

We may be in the midst of a truly British summer at the minute (with a healthy mix of sunshine and lots of rain), but we all know that winter is never that far away. And that means we’ll all be using our gas and electricity that bit more.

And the good news is that the drop in temperature is set to coincide with a lowering of the energy price cap. Ofgem, the energy regulator, have announced that households on default or expensive standard variable tariffs could see their energy bills drop by £75 a year or more, bringing the total annual bill down to a maximum of £1,179. For consumers on prepayment meters, they could see their bills be reduced by £25 to £1,217.

Why exactly has Ofgem cut price caps?

Ofgem has said that the main reason for the price cap cut is a ‘significant’ drop in wholesale energy costs between February and June 2019.

Wholesale costs have been dropping for a few reasons. One of them is a low demand for energy last winter, as well as strong gas supply and relatively healthy storage levels. These have all driven down the cost of wholesale energy.

As consequence of this, the wholesale energy cost element of the default tariff cap fell by £75, while VAT, supplier profits and other costs have also fallen.

If you’re on a standard variable tariff, here’s what to expect

If you’re one of 11 million households currently on a standard variable tariff from one of the Big Six energy providers (i.e. Eon, British Gas, EDF, npower, SSE or Scottish Power) then depending on how much you currently pay you may see your bills drop after 1st October.

Big Six standard variable tariffs (SVTs) are often some of the more expensive tariffs, and the price cap is designed to protect customers from increasingly expensive SVT deals. Customers on SVT deals who pay by direct debit will see their bills drop by around £75.

What if you’re on a prepayment meter?

There are around 4 million people currently taking advantage of prepayment meters, which allow you to pay for energy as you – much like a pay-as-you-go phone contract. From 1st October, prepayment customers will see their annual bills cut by around £25 to £1,217.

Because of a calculation change, the cap for prepayment customers is higher than that of those on SVT deals.

Ofgem says that the prepayment cap now “fully reflects the higher cost of providing energy to these customers.”

What does the cap mean for you?

Speaking on the price cap introduction, Ofgem says that “the energy bills of around 15 million customers on default deals or prepayment meters will fall this winter to reflect the reduction in cost of the wholesale energy.”

Because of this, the regulator says that customers can now “be confident that whatever happens, the price they pay for their energy reflects the cost of supplying it.”

However, some people are not so impressed by the new announcement. For many, the cap is simply a “reminder” for customers that they should be checking the value of their current deal.

This is a sentiment shared by Ofgem, who said have that they “would encourage all customers to shop around to get themselves the best deal possible for their energy.”

Take back control of your energy and start comparing tariffs today with The Energy Check! Simply click here or chat with our team by calling 0800 031 48 00.