The Ofgem energy price cap has seen energy bills fall by 12.3%. Prices are now the lowest they have been in two years. Further significant drops in the cap are expected later in 2024 for the near-29 million households sat on standard variable tariffs.
What you'll actually pay for your energy is likely to be higher or lower than the price cap figure that'll be announced (the one Ofgem publishes is a national average). Your bills are determined by your usage, what type of house you live in, and where in the country you live, amongst several other factors.
Since energy prices started to fall from their record highs in 2023, suppliers have started to introduce fixed deals again. These lock in the unit rates you pay for your energy, regardless of fluctuations in the cap and wholesale markets. Our 'Should you switch' article runs you through what to think about when considering a fix.
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So, what is the energy price cap - and what does it mean in practice for your gas and electricity bills? We've explained everything you need to know.
What is the Ofgem energy price cap?
The Ofgem energy price cap sets the maximum unit rates energy firms can charge per kilowatt hour (kWh) for gas and electricity, along with standing charges, every three months. It is not a cap on your total energy bill, which will mostly be determined by your energy usage.
The cap currently applies to around 29 million households in England, Wales and Scotland. Northern Ireland has a tariff review process instead of a price cap.
Under the old price cap, which ran from 1 January until 31 March, the typical household paid about £1,928 a year. This figure was based on the probable energy consumption of a typical household, plus capped unit rates of:
Gas: 7.42p per kilowatt hour (kWh); 29.60p standing charge per day.
Electricity: 28.62p per kWh; 53.35p standing charge per day.
Under the April energy price cap, which sits at an annual figure of £1,690 and runs until the end of June, the unit rates are:
Gas: 6.04p per kilowatt hour (kWh); 31.43p standing charge per day.
Electricity: 24.5p per kWh; 60.1p standing charge per day.
It's worth noting that these figures are averages as the exact amount you'll pay per kWh and for standing charges depends on which region of the country you live in.
The latest price cap is 2% more expensive than what was forecast by experts. It came as a result of an unexpected increase in standing charges, which Ofgem attributed to “increasing network costs”.
These figures also mean that, regardless of the amount of energy you use, if you have both gas and electricity, you’ll be paying more than £300 a year in standing charges alone. Ofgem is currently reviewing the results of a consultation into whether it should scrap the current system of standing charges.
The energy price cap was initially put in place to protect vulnerable households. Before the energy crisis, you would only drop onto a variable tariff if you let your fixed deal expire and didn't switch to a new deal. To prevent consumers in this situation from being overcharged, Theresa May's government brought in the cap.
However, when the energy crisis hit in late 2021, suppliers almost entirely stopped offering fixed rate deals as a result of surging wholesale prices - an issue which led to dozens of providers going bust, including Bulb Energy. Those on offer tended to be much more expensive than variable rate tariffs. So, most households dropped onto these variable rates, which are governed by the price cap.
For much of the last two years, most of us have been paying the rates set by the Ofgem cap. The only time people didn't was from October 2022 to June 2023, when the government brought in the Energy Price Guarantee (EPG).
The EPG acted as a safety net after the Ofgem price cap was due to rocket even higher in the wake of Russia's invasion of Ukraine. Once wholesale costs, which are the biggest factor in the price cap's rate, fell below the EPG in July 2023, households once again found themselves on the variable rate.
Since then, fixed rate deals have returned - although they still struggle to compete with the Ofgem price cap. Energy consultancy Cornwall Insight says it could be the 2030s before competition means energy bills fall back to where they were pre-Covid.
When is the next Ofgem energy price cap announcement?
The next quarterly price cap announcement will be on 28 May 2024 and will cover what energy suppliers can charge between 1 July to 30 September 2024.
The figure the regulator announces will be based on an assessment period for wholesale prices that runs from 16 February to 16 May 2024. The cap is set four times a year, so we have two more caps still to come this year.
Will energy prices fall?
According to the energy consultancy Cornwall Insight, the Ofgem energy price cap is due to fall again in July.
The firm, which has accurately predicted changes to the cap throughout the energy crisis, expects May's announcement to see a 7.7% (£130) fall in the cap. The annual figure is forecast to be £1,560.
It then anticipates the cap will rise by 4.5% (£71) in October. Both sets of figures marked an increase from Cornwall Insight's previous forecasts. Of course, any big geopolitical changes - for example, a wider war in the Middle East - could change the picture significantly.
Cornwall Insight's principal consultant, Dr Craig Lowrey, has previously warned that a return to pre-energy crisis gas and electricity bill prices “isn’t on the horizon”. He added: “Shifts in where and how Europe sources its gas and power, alongside continued market jitters over geopolitical events, mean we are likely still to face costs hundreds of pounds above historical averages for a while. Potentially, this is the new normal for household energy budgets.”
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