What the Energy Price Cap change means for energy bills

what-the-energy-price-cap-change-means-for-energy-bills

The Energy Price Cap is the maximum amount energy suppliers can charge you for each unit of energy you use. It’s updated every three months by energy regulator Ofgem, to make sure that prices reflect changes in underlying energy costs as well as inflation.

On account of falling wholesale energy prices earlier in the year, a reduced cap is in place from October to December 2023. This limits the average bill for a typical household using gas and electricity (and paying by direct debit) to £1,834 per year.

But this is the average a ‘typical’ household will pay. Ofgem estimates a typical or ‘medium-use household’ as those living in a 2-3 bedroom house with 2 or 3 people.  The amount you pay will depend on how much energy you use, and where you live, as well as how you pay your energy bills.

This month, Ofgem has announced a 5% increase to the price cap for January to March 2024, due to the recent rise in the price of wholesale gas. This means the average household bill is set to rise by around £94 annually, and takes the price cap back up to around the levels we saw in July to September this year.

While this rise comes as we head into the colder months, it’s worth noting that the upcoming cap amount is much lower than the cap was for January to March in 2023. The government’s Energy Price Guarantee was in place at this time, to prevent the average household bill from rising above £2,500. But right now, the EPG isn’t required, because the price cap amount is lower than the £2,500 limit.

Is there still a discount on energy bills?

This government’s Energy Bills Support Scheme – which gave all households a discount of £400 on their energy bills from late 2022 to early 2023 – has now ended. So when you’re working out how much your bills will be compared to last year, it’s good to keep in mind that these monthly reductions won’t be applied this winter.

There are some other government-funded schemes in England, Scotland and Wales to help with energy bills, available to certain eligible customers. If you live in Northern Ireland, you can find more information here.

One of the schemes that offers help during the winter months is the Warm Home Discount Scheme. Under previous schemes, if you get benefits, or if you or your partner get the Guarantee Credit element of Pension Credit, you could get a discount of £150 off electricity bill in winter, or £150 added to your prepayment meter. Or you could also get a discount on your gas bill instead if your supplier provides both gas and electricity.

Does the Energy Price Cap affect me?

If you’re on a fixed tariff for your energy supply, then you won’t be affected by the price cap.

The Energy Price Cap is applied if you’re on a default energy, or standard variable, tariff. This includes those who pay by direct debit, standard credit, prepayment meter, or who have an Economy 7 (E7) meter.

If you have a pre-payment meter, the Energy Price Guarantee (EPG) now ensures that costs are more aligned with direct debit users. From 1 October 2023, changes were made to how the discount is paid. Instead of being delivered as a discount to unit rates, there will be a discount applied to the standing charge.

If you pay by direct debit, your energy bills are usually based on an estimate of how much you use. So if you’re in credit, it’s worth doing a meter reading and getting in touch with your supplier to check you’re still paying the right amount.

Energy Price Cap by payment type: January to March 2024

Direct Debit Prepayment Standard Credit Economy 7*
Oct – Dec 2023 cap £1,834 £1,861 £1,959 £1,219
Jan – Mar 2024 cap £1,928 £1,960 £2,058 £1,272

Source: Ofgem. *Electricity-only Direct Debit

READ MORE: Find out how the Energy Price Cap is set

How will the price cap change impact my energy bills?

You can check the average rate charged per unit of energy used below, and compare that with your household energy bills to work out an estimate of your household’s energy usage.

Energy Price Cap: What’s the average rate charged per unit of energy used?

Jul-Sep 2023 Oct-Dec 2023 Jan-Mar 2024
Gas 8p per kWh 7p per kWh 7p per kWh
Electricity 30p per kWh 27p per kWh 29p per kWh

Source: Ofgem. Based on average rates for direct debit users, which vary by region

Ofgem estimates a typical or ‘medium-use household’ as a two- to three-bedroom house with 2 or 3 people living in it.

If you live in a flat, or a one-bedroom house, your energy use is estimated to be ‘low’. And if you live in a four-bedroom home, with 4-5 people, your energy use is estimated to be ‘high’. See below.

Energy use Example – size of home & number of residents Typical annual gas use Typical annual electricity use
Low Flat or 1-bed house; 1-2 people 8,000 kWh 1,800 kWh
Medium 2-3 bed house; 2-3 people 12,000 kWh 2,900 kWh
High 4 bed home, 4-5 people 17,000 kWh 4,300 kWh
Source: Ofgem

Source: Ofgem

The current rates and standing charges in your region are outlined here.

How much you’ll pay also depends on how energy-efficient your home is, and which appliances you use – and how often you use them.

Energy usage is calculated in kilowatt (kWh) hours, or units. One kWh is enough to power a 100-watt lightbulb for 10 hours, but in comparison, it takes 4.5 kWhs to power a single cycle of a tumble dryer.

Will there be a change to the standing charge on my bill?

The fixed standing charge you pay is just to have a connection, regardless of how much energy you use. It’s also used to cover things like maintenance of the supply network, take meter readings, and to support government and environmental schemes.

The amount you’ll pay depends on your supplier, what tariff you’re on, and where you live. The average daily standing charge for electricity is 53p a day, and 30p a day for gas. That works out at just over £300 a year on average.

Ofgem has recently launched a review into standing charges and you can submit feedback here until 19 January 2024.

Feedback from the review will help Ofgem to set out recommendations due to be published next year. This formal consultation will lead to a policy on standing charges.

Will could energy costs fall?

The Energy Price Cap covers a period of three months and changes four times a year: in January, April, July and October.

Analysts at Cornwall Insight, an independent energy research, analytics and consulting firm, forecast energy costs to fall through the spring and summer of 2024, before rising again towards the end of the year.

Their forecast shows prices dropping back to £1,816 from April to June 2024, and £1,793 from July to September 2024.

READ MORE: What’s the difference between the Energy Price Cap and the Energy Price Guarantee?