Millions of households are set to make 'big savings' on energy this winter, after the industry regulator, today announced plans to slash price caps to their lowest ever level.
From October, Ofgem will cut the annual cap by £84 to £1042, its lowest level since regulations were introduced in January 2019.
It will also cut the cap for pre-paid customers by £95 per year, to £1070.
Millions of households, many of whom face financial hardship due to the COVID-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced. They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market."Ofgem chief executive Johnathan Bailey said:
The regulator estimates that the changes will affect around 11 million customers across the UK.
It also announced that the pre-paid cap would expire at the end of the year, and be rolled into the ordinary tariff to help protect pre-paid customers in future.
According to Ofgem, a fall in the price of gas since the start of the Coronavirus pandemic is to thank for the reduced tariffs.
However, as economies start to re-emerge from the COVID doldrums, rising wholesale energy prices could lead to higher energy prices again in the spring, when the regulator decide on the summer season energy caps.
Ofgem introduced the energy price cap in 2019, in an attempt to make the industry fairer for consumers by ensuring that energy bills reflect suppliers' costs.
As a result, when the cost of providing energy goes up, so does the amount that suppliers are allowed to charge customers- and when suppliers' costs fall, the cost of energy comes down as well.
However, many experts say that switching provider is still the best way to save on energy:
Shopping around for a cheaper energy deal is still the best way to save money, particularly for customers on standard variable tariffs, but before switching to a new supplier, it's a good idea to check out its customer service credentials. Review sites and other online tools give an idea of the quality of service on offer and can help people to make an informed decision when switching. Of course price matters, especially at the moment, but customer service is important too.said director of regulatory affairs at the Energy Ombudsman, Ed Dodman.
Switching is so effective because it can help to save money on other parts of an energy bill which are not covered by the Ofgem cap.
The cap only limits how much suppliers can charge per kWh of energy, and the annual figure quoted by Ofgem is representative of the average energy bill when paid by direct debit.
However, lots of factors influence how much a household pays in energy bills. Supplier, type of meter, where you live and how you pay are all factors which ultimately add up to make your bill, but are not affected by the Ofgem price caps.
How does Money Savings Advice work
Money Savings Advice is an independent editorial company providing detailed information about numerous financial niches with the aim of helping consumers make informed financial decisions. We aim to provide hints, tips and techniques to help you make your money work for you. However, we are not perfect, and we accept no liability if anything we write about goes wrong.
Money Savings Advice is a trading name of RMM Digital Publishing Ltd. Registered trading address, First Floor, 85 Great Portland Street, London, W1W 7LT. Trading in England and Wales, company number 11550143 with data protection number ZA747669.