Energy price cap drops to £2,074: what does it mean for your bills?

Energy bills will fall for most households from 1 July, after energy regulator Ofgem announced that energy suppliers must charge customers less.

Today’s announcement sees a £426 per year reduction in the cost of the typical gas and electricity bill. 

While the illustrative headline figure sets the new annual energy price at £2,074 for a 'typical household', this isn't what you'll pay. The cap is actually a maximum price for each unit of energy you use - measured in kilowatt hours or kWh.

From 1 July this will be set at:

an average 30p per kWh of electricity and 8p per kWh of gas for those paying by direct debit

an average 29p per kWh of electricity and 8p per kWh of gas for prepayment customers. 

What you pay will be slightly different based on what your standing charges are in your region.

If this sounds like a smaller cut to your bills than expected, that’s because we haven’t actually been paying the full amount of the price cap since October 2022. 

Instead we’ve been paying a reduced amount thanks to the government’s Energy Price Guarantee (EPG), currently set at £2,500. This has been subsidising bills and pays energy companies the difference between it and the price cap. 

But, from July, Ofgem’s price cap will fall £1,206 per year, from £3,280 to £2,074 for a typical household. It will be £426 below the level of the government’s Energy Price Guarantee and so will set the rates we pay again. 

Gas and electricity are still very expensive however. The typical bill will still be around £1,000 more per year than pre-pandemic prices. 

Find out more about .

Does the energy price cap apply to me? 

The energy price cap applies to you if you are on a default, standard variable or out-of-contract deal with your energy company. 

Previously the price cap affected a relatively small number of customers; only those who took no action when their fixed deal ended or hadn’t changed supplier or tariff in a long time. But with cheaper fixed deals lacking during the recent energy crisis, it’s now relevant to the majority of us. Ofgem estimates that 29 million households currently pay for a variable energy tariff. 

That's 4 million on prepayment meters and 25 million who pay by direct debit or on receiving their bills. Ofgem estimates that only 3 million households are currently still on fixed energy deals.

The energy price cap doesn’t apply if you’re on a fixed deal – your rates will say the same. 

The price cap is not a limit on your total bill. It caps the amount that you can be charged per unit of gas and electricity that you use. So if you use more, you pay more. 

The figures in this piece, and commonly used elsewhere, are based on a ‘typical medium user’. That means a household using 2,900kWh of electricity and 12,000kWh of gas per year.

 If your energy costs are stacking up, find out .

How much will gas and electricity cost from July? 

For customers paying by direct debit, the average rates for electricity will be: 

Standing charge: 53p per day

Unit rate: 30p per kWh

For gas, the average rates will be: 

Standing charge: 29p per day

Unit rate: 8p per kWh

For customers paying by pre-payment meter, the average rates for electricity will be: 

Standing charge: 53p per day

Unit rate: 29p per kWh

For gas, the average rates will be: 

Standing charge: 29p per day

Unit rate: 8p per kWh

These are averages across all regions in Great Britain. The exact amounts you’ll pay depend on where you live and how you pay. 

Your supplier should let you know the rates you'll pay in good time before the 1 July change; check your online account or next statement, and look out for a letter or email from your provider with your new rates. 

Should I fix an energy deal? 

A fixed tariff means that your rates are set for the duration of the contract you sign up to (usually a year or two). This includes: 

The daily standing charge 

The unit rate for each kWh of gas or electricity you use. 

A fixed tariff means that your energy charges are predictable. However there have been few fixed deals available recently. 

With a variable rate energy deal your prices change whenever the price cap does (every three months) or whenever your supplier changes its prices. Most of us are on one of these at the moment. It means you benefit if the price cap drops (or a supplier lowers its rates) but also that your bills can change often. 

Fixed deals may start to reappear as wholesale prices stabilise. 

If you’re tempted by a fixed tariff, check the following: 

Is it cheaper than what you’re currently paying? Compare the standing charge and unit rates with your current tariff and use a price comparison website (with your actual usage in kWh) to see how it stacks up. 

Are there exit fees if you want to leave before the end of the contract? 

Are there other requirements, such as paperless billing or online-only customer service, and do these suit you? 

Once you’ve switched to a fixed tariff, it’s still worth keeping an eye out in case much cheaper deals materialise over the coming months - especially if your tariff has no or low exit fees.

The price cap changes every three months. So if it drops further in October, check again whether you’d be better off with a price-capped tariff rather than a fixed deal. 

Be ready: know and .

source https://www.which.co.uk/news/article/energy-price-cap-drops-to-2074-aAS1F1s7Jm5H