Can I lower my energy bill and what is the cap on prices?. An overview of the implications of the quarterly decision made by Ofgem for British homes
In Great Britain, the average yearly energy bill will increase to £1,717.
Martin Lewis urges reconsideration of the proposal to cap winter fuel assistance.
October will see higher energy bills following the industry regulator’s announcement of a 10% hike in the cap on energy prices.
The average annual energy cost will increase to £1,717 under the new price cap for gas and electricity, up £149 from the previous amount of £1,568 that has been in effect since July.
What is the price cap?
The price cap, which establishes a maximum amount that suppliers can charge their 29 million residential customers per unit of gas and electricity, is established by Ofgem, the energy regulator for Great Britain, once a quarter.
In order to safeguard consumers who did not compare energy prices and make sure they were not overpaying to support other customers, it was implemented in 2019. However, it became the default tariff for providers as costs continued to climb and smaller energy firms started to fail; as a result, the majority of people now pay prices at the cap.
While we talk about a cap, there are actually multiple caps because prices differ depending on where you live and how you pay. For regular credit clients, or those who pay their account in arrears, the cap is larger than it is for direct debit or prepayment meter consumers.
Standard credit households will see an increase in the average price cap of £161 to £1,829.
What is the price I will pay?
The amount you pay will vary depending on how much you use; while the cap is based on average usage, your bill will alter if your consumption differs from that which Ofgem used to calculate its figures.
While energy companies have some flexibility within the cap, most rates will approximate the figures supplied by Ofgem. They state that the new unit costs for gas and electricity for customers who pay with direct debit are 6.24p and 24.5p per kWh, respectively.
As a result of the increased cap, a direct debit customer’s standing charge will slightly increase to 60.99p for electricity and 31.66p for gas starting on October 1. Even if you do not use any energy, you will still be responsible for these fees, which means you will be unable to avoid paying roughly £6.50 each week, or £338 annually.
Will the cost of standing charges continue to rise?
The annual cost of standing charges was £182.27 around five years ago, therefore the expense of just having an electricity supply has significantly increased. The providers utilise the fees to pay for a variety of expenses, such as staffing, infrastructure, and offering the warm home discount to people in need.
Protesters have demanded reforms to shield the most vulnerable consumers from increased bills even in cases where they decide to cut back on their energy use. In November of last year, Ofgem announced that it was consulting on modifications to its standing charges that would lower them by a total of £20 to £100 year.
One option would be to shift part of the costs to the unit price, but Ofgem issued a warning saying that this would affect vulnerable households who require more energy use and might result in 500,000 lower-income people having their energy bills rise by 10%.
It is encouraging energy providers to provide low- or no-standing-charge tariffs; these would likely have higher unit rates but would have in a greater impact on home costs from reduced energy use.
How much is it now compared to last year?
The cap is below the January to March price and somewhat less than it was for October to December 2023. It was fixed at £1,834 for three months in October of last year, and then it increased to £1,928 on January 1st.
The winter cap was £1,216 in 2021, prior to Russia’s full-scale invasion of Ukraine, although it is still far higher than that level. Additionally,
less government assistance is offered. The cost of living payments for low-income households, which could have been as much as £300 in the autumn of last year and £299 in the spring, have terminated.
Pensioners no longer receive their up to £300 cost of living benefits, and the winter fuel payment will now be means-tested. The latter was worth £100 to individuals not receiving other benefits and was formerly paid to everyone receiving a state pension. It would have helped offset the increase in winter prices.
Exists a better offer for me?
Indeed. With some offers that are less expensive than the new price cap, energy companies have returned to the market.
With a “Fix’d Dual Aug24 v4.0 tariff” from Outfox the Market, prices will be less than those of October because they are nearly identical to the existing price ceiling. There are packages, like one from EDF, that are variable but will always be below the cap, and the majority of the major providers have fixed-rate agreements that fall below the new cap.
There are penalties associated with some of these packages if you move out during the set or discounted period.
What assistance is available to me?
Pensioners who receive pension credit will continue to be eligible for the winter fuel payment. In addition, the cold weather payment, which is £25 per week paid if the average temperature in your area falls to 0C or below for seven days straight between November 1, 2024, and March 31, 2025, will be available to those retirees and other needy households.
If you are eligible, your provider will apply the £150 warm home discount immediately to your electricity account.
The energy suppliers have funds set up specifically to assist persons in need. The majority are only for their own clients,
although homes having accounts with other companies can also receive assistance from the British Gas Energy Trust. To be eligible for a grant from these funds, you must apply.