Energy Bills to Lower Slightly
There’s good news and bad news. The good news is that Ofgem will lower the price cap from July. The bad news is that it’s not as low as it should be. A new price cap of £2,074 will apply, but the steep drop in global energy prices isn’t reflected well enough in this figure. Trading Economics sees the price of natural gas in the UK at 61p per therm, which is the lowest it has been since June 2021.
Even though there is always a delay in decreasing energy bills and a drop in global energy supplies, gas has been on a downward trajectory since December 2022 when stockpiling levels were at their highest in Europe. Despite summer stopping households from using their heating as much, Ofgem hasn’t lowered the price cap enough. Consumers were hoping for a far steeper drop to £1,500.
The confusingly named price cap doesn’t mean households will pay a maximum of £2,074 a year for their energy bills. Instead, the cap is on the unit of energy that consumers will pay. As the unit rates stand, they will lower to the following:
For all intensive purposes, Ofgem has rounded these to 8p/kWh for gas and 30p/kWh for electricity. This is down from the current 10.3p/kWh for gas and 33.2p/kWh for electricity. It’s believed that the 17% drop in the price cap will save households over £400 a year, but as Martin Lewis explained, it will still cost you just for being connected because of daily charges.
“The moral hazard of high standing charges continues too. The reduction is all off the unit rate. It will still cost you roughly £300/yr just for the facility of having gas and electricity. This perversely means the less you use, the less you save.”
Martin Lewis - Money Saving Expert
Because of the drop in prices, it’s expected that 27 million households will see a dip in their energy bills, but this won’t be much of a relief in winter. As far as analysis goes, energy bills are still up 2 ½ to 3 ½ times more than they were in January 2021. The world’s dependence on coal, oil and gas has plummeted, thanks, in part, to Russia’s invasion of Ukraine, but the energy regulator is still keeping the price cap high.
What’s worse, households will no longer receive any government support for energy bills, like they had throughout the energy crisis. The Energy Bills Support Scheme softened the blow of higher energy bills with a £400 rebate across October 2022 to March 2023. With the government saving money on no longer helping the public with their energy bills, it could open the doors for targeted support, but this would be very unlikely.
Before the energy crisis, households saw typical energy bills of £1,271 for gas and electricity. Now that the level will be £2,074, the UK public will be paying an average £803 more than they used to. Where Ofgem highlights a £400 saving a year, are they prolonging the energy crisis by not making the cap even lower?