Millions of British households are set for a welcome financial reprieve this summer, as the energy regulator Ofgem confirms a significant drop in its price cap. The new rate, effective from July 1st, will see the average annual dual-fuel bill fall by £122.
What Does the New Cap Mean for Your Wallet?
The headline figure shows the cap for a typical household dropping to £1,568 per year, down from the current £1,690. This 7% reduction translates to savings of around £10.17 on your monthly energy outgoings.
It's crucial to remember that the cap governs the maximum price suppliers can charge per unit of energy, not the total bill. As Ofgem CEO Jonathan Brearley emphasises: "The price cap is not a cap on people's overall bills... their total energy bill will still depend on how much energy they use."
Why Are Prices Falling Now?
This positive shift is primarily driven by a sustained period of lower wholesale gas prices—the cost energy firms pay to buy gas before selling it to consumers. A milder winter across Europe, which left gas storage levels healthier than anticipated, has been a key factor in stabilising the market.
This is the lowest the cap has been since the onset of the global energy crisis, which saw bills skyrocket to an eye-watering peak of £4,279 in early 2023. While the new cap is a step in the right direction, it's important to note that prices remain substantially higher than pre-crisis levels.
Standing Charges: The Sting in the Tail
While the unit cost of energy is falling, the daily standing charge—a fixed fee paid for connection to the grid—is actually rising for many. This charge, which covers infrastructure costs and policy levies, varies by region and payment method.
This means some households, particularly those with lower energy usage, may not feel the full benefit of the price cap reduction, as the higher fixed daily cost eats into the savings from lower unit rates.
What Should You Do Next?
With the market stabilising, experts are now advising consumers to start shopping around for fixed deals again. For over two years, the price cap was the cheapest option available, but competitive fixed-rate tariffs are now beginning to reappear.
Dr. Craig Lowrey of Cornwall Insight cautions: "If you are offered a fixed deal, make sure you check the details... and whether the price per unit and standing charge are lower than the upcoming price cap." Conducting a full market comparison is the best way to ensure you're getting the best possible deal for your usage.
While the July drop is confirmed, predictions for the following quarter (October-December) suggest a potential slight increase of around £30 per year. Staying informed and prepared to switch could be key to managing your energy costs through the rest of 2024.
