Average energy bills set to start to falling later this year

The average cost of heating and lighting a home could fall later in the year following a near £1,000 reduction in the energy price cap.

Energy regulator Ofgem has cut the price cap for gas and electricity customers on their providers’ default and variable tariffs from £4,279 to an average of £3,280 a year from 1 April.

But the move, which follows recent falls in wholesale energy prices, will not have an immediate impact on customers’ bills due to the government’s Energy Price Guarantee (EPG).

Under the guarantee, the government stepped in to limit the average household’s combined energy bill to £2,500 until the end of March, rising to £3,000 from 1 April.

As a result, customers will still see an increase in their energy bills of around £500 a year from April.

But the reduction to the energy price cap means the average consumer can expect to have lower energy bills in the months ahead, once the energy price cap falls below the level of the EPG.

Ofgem said its cut to the energy price cap, which limits the amount suppliers can charge per unit of energy, was due to a significant reduction in the cost that companies faced in buying and providing energy to customers.

Energy prices have soared following the start of the conflict in Ukraine in February 2022.

The military action led to the UK, EU and US putting restrictions on oil and gas imports from Russia, which had previously accounted for 43% of the EU’s natural gas imports.

The fall in supply coincided with a rise in demand for energy as economic activity resumed following Covid-19 lockdowns, combined with a cold winter in Europe and a hot summer in Asia, where electricity is used to power air conditioning units.

The resulting mismatch between supply and demand pushed gas and electricity prices higher.

Unfortunately, the reduction in the energy price cap will not lead to an immediate reduction in gas and electricity bills for consumers.

This is partly because suppliers purchase their energy months in advance, and partly because of the increase to the level of the EPG.

Ofgem CEO Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee.

“This means, that on current policy, bills will rise again in April. I know that for many households this news will be deeply concerning.”

But he added that the reduction in the energy price cap reflected a fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, suggesting the pressure seen in the energy market was starting to ease.

“If the reduction in wholesale prices we’re currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower.”

If you’re worried about being able to afford your energy bills, or you’re already struggling, make sure you claim any support that’s available to you.

Cost-of-living: help with energy bills

Check that you have claimed any cost-of-living or cold weather payments you are entitled to from the government, as well as the warm home discount from suppliers.

A number of the major energy companies offer grants to help people struggling with their fuel bills. For example, British Gas offers up to £1,500 for individuals and families who are in energy debt, regardless of who their supplier is.

If you’re already facing difficulties, contact your supplier as soon as possible.

Ofgem has rules that they must help you if you’re falling behind. They should work with you to create an affordable payment plan.

You can also take steps to reduce your gas and electricity consumption. Try turning your thermostat down, taking shorter showers, draft-proofing your windows and doors, not using a tumble drier and turning off appliances left on standby mode.