The industry regulator Ofgem has recently announced its newest price cap set for October 2020 to March 2021 which will help save as much as £84 on energy bills for around 15 million customers.
The price cap sets the highest amount that energy companies can charge customers for their electricity and gas supply.
Ofgem will be setting the lowest price cap yet, owing the drop in prices to the recent coronavirus crisis. An average savings of £84 will be provided to 15 million energy customers from October 2020 until March 2021.
The current price cap is at £1,126, which will be lowered to only £1,042 as soon as the price cap period starts. This rate is applicable for the average energy use of 2,900 kWh for electricity and 12,000 kWh for gas.
This October price cap does not say that a consumer could not be charged more than the cap amount but sets a benchmark for pricing for ‘average’ use. If an energy user consumes more than the set average then they will also be paying more for their consumption.
From October 2020, prepayment meter (PPM) customers can also get themselves a savings of £95.
Ofgem decided to lower the price cap due to the falling cost of fuel brought about by the Covid-19 pandemic and as a way to help people who may be struggling with the costs of essential services.
About half of the UK’s population, specifically 4 million PPM customers and 11 million default tariff customers, can benefit from significant savings the new price cap brings in during the winter.
Ofgem CEO Jonathan Brearley stated that millions of UK households would be able to take advantage of cost savings from energy bills with the new price controls coming in place. It is especially beneficial now that the coronavirus pandemic has negatively impacted several families and without a clear resolution as to when this health crisis will cease.
Brearley also said that customers could further reduce their bills by shopping around for a new deal or supplier. Understandably, any consumer paying energy bills as high as the price cap for average consumption could be under a lousy contract— several suppliers offer cheaper and better deals significantly lower than £1,042.
However, fixed-rate tariff customers will probably not benefit from the lowered price cap as their deal falls lower than the maximum price.
The CEO also said that Ofgem would see to it that customers are protected, especially during this time when the government and energy industry is working to create a greener and fairer market.
The new price cap is the lowest it has been since it was first introduced in January 2019. The use of price caps will start automatically, which means that customers do not need to do anything for the caps to be applied unless they are planning to switch to a new supplier.
Richard Neudegg, Uswitch regulation head, revealed that wholesale energy prices have gone down during the first half of this year after the national lockdown was imposed due to COVID-19. However, Neudegg pointed out that the latest price control is still about £232 more expensive than the market’s cheapest deal available. Households might secure more savings if they choose to switch from their default tariff and supplier.
Neudegg added that locking into a twelve-month energy deal might be a better choice since Ofgem stated that the cap might see a rise in April 2021, depending on wholesale trends.
Compare the Market head Peter Earl stated that while the reduction on the price cap might seem like good news, it does not necessarily equate to a good deal. The price control is just the maximum price limit that a supplier can charge to its customers.
Earl added that a customer could save £217 when switching to some of the best-priced deals in the market. He also mentioned that the pandemic prompted a rise in energy bills since family members have been staying indoors more and this means some households who may be within the average use before the pandemic may see a rise in their annual usage. On average, some households have been paying around £32 more on average per month since the pandemic started.
Customers under a standard variable tariff or SVT are very likely paying more for their energy, according to Earl. He added that they always urge people to be swayed by this fact, and research for better deals that would give them more savings in the long run.