What does the price cap increase mean for energy bills?
The energy price cap, set by Ofgem, is designed to limit the cost per unit of energy that suppliers can charge households. For the period from October 1 to December 31, 2024, the price cap has been raised to £1,717. This represents a 10% increase (+£149) from the previous period, primarily due to rising wholesale energy costs.
While the £1,717 figure is based on estimates for a typical household’s energy consumption, it’s important to note that this number is just an average for a “medium-use” household, which Ofgem defines as those living in a 2-3 bedroom house with 2 or 3 people.
The actual amount you pay could be higher or lower based on several factors:
- Energy usage: The more energy you use, the more you’ll pay.
- Location: Regional differences can affect prices due to network distribution costs.
- Payment method: Paying by direct debit usually offers a cheaper rate compared to paying on receipt of the bill or using a prepayment meter.
This cap is reviewed quarterly, meaning it could change again in January 2025, depending on market conditions.
Will you be affected by the energy price cap?
If you’re on a fixed tariff for your energy supply, your rates remain unaffected by changes in the energy price cap. The price cap only applies to default or standard variable tariffs, which are more vulnerable to market fluctuations. These tariffs cover customers who:
- Pay by direct debit,
- Use standard credit (paying on receipt of a bill),
- Have a prepayment meter, or
- Use an Economy 7 (E7) meter, which charges different rates for day and night usage.
Prepayment Meter Changes (from 1 October 2023)
For homes with prepayment meters, the way the price cap discount is applied has been modified. Instead of reducing the unit rate (the cost per kWh of energy used), a discount is now applied to the standing charge (the fixed daily cost of having energy supplied). This ensures that the benefit from the price cap is still provided, but it changes how the discount is delivered.
Direct Debit Customers
If you pay by direct debit, your bills are typically based on an estimate of your energy usage rather than actual meter readings. This can sometimes lead to overpayment or underpayment. If you’re in credit, it’s worth taking a meter reading and contacting your energy supplier to make sure your monthly payments are accurate and reflect your actual usage. This will help you avoid paying too much or too little as energy costs change.
What can I do to save money on my energy bills?
During the energy crisis in 2022, when prices were at their peak, switching energy suppliers was no longer a practical option for saving money because all tariffs were similarly high. However, as energy prices have stabilized and fallen from their 2022 peaks, switching suppliers or exploring new deals from your current supplier may once again help you reduce your bills.
Here’s how you might save money by reviewing your energy options:
- Check fixed tariffs: Some energy suppliers may now offer fixed-rate tariffs that could provide more certainty and potentially lower rates compared to variable tariffs, especially if you expect prices to rise again in the future.
- Compare tariffs: Use energy comparison websites or contact suppliers directly to see if they offer a better deal based on your energy usage. Different suppliers may offer various tariffs suited to different types of customers (e.g., high or low energy users).
- Review your current supplier’s deals: Even if you don’t want to switch, your current supplier may have new deals or discounts, especially for those willing to lock in a rate for a set period.
- Look for green tariffs: Some renewable energy tariffs might be competitive and could align with your values while still offering savings.