Energy prices fall as price cap drops by £84/yr – but most could save £100s/yr more by switching

Some 11 million households on pricey standard tariffs are set to see bills drop from today, as the energy price cap falls by £84/yr, from £1,126/yr to £1,042/yr, for a typical dual-fuel household.

According to the regulator, the fall in the price cap is due to a sharp drop in wholesale energy prices (what suppliers pay for gas and electricity), mainly down to reduced demand for energy during lockdown.

This isn't the maximum you can be charged though. The price cap sets a limit on the rates you pay for each unit of gas and electricity, so if you use more, you'll pay more. What's more, while rates will have fallen if you're on a standard or default tariff, your provider may not necessarily cut your direct debit payment immediately – particularly as providers like you to be in credit leading into the higher-use winter period.

However, don't be fooled – the current cheapest energy deal is about £200/yr less than the new cap on typical use. But act soon. In recent months we've seen the prices of the cheapest energy deals for switchers creeping up, so now's the time to do a Cheap Energy Club comparison and lock in a cheap fix.

The price cap level for prepayment tariffs is also falling today, from £1,164/yr to £1,070/yr for a typical household. Again, this is much higher than the cheapest prepay deals available – switching could save an average £90/yr on the new prepay price cap level.

If you're on a standard or prepay tariff, use our Cheap Energy Club to find the best deal for you. Or let us do it all for you by joining our new MSE Autoswitch service, where we pick your top tariff based on your priorities and switch you year after year.

Don't just sit back and pay these rip-off rates

Gary Caffell, energy and utilities editor at MoneySavingExpert.com, said: "Don't let this price cut lull you into a false sense of security. The 11 million households still on standard tariffs are almost certainly massively overpaying now, even after today's cut.

"The cheapest deals on the market are about £200/yr cheaper on average than the new standard rates, and as we're all using more energy than usual now we're at home more, it's vital to sort out your energy bills. So don't just sit back and pay these rip-off rates – see if you can switch to a cheaper deal now.

"And remember, when you switch no one needs to visit your home (unless you want a smart meter) and you won't be left without gas or electricity. All that changes is price and who bills you for your energy."

The best savings still come from switching

Once again, the big six have predictably priced either at or within a pound of the cap. Customers of the big six will typically save an average £84/yr under the new capped rates. In comparison, the cheapest deal on the market is £844/yr – about £200/yr less than the new average big six standard price.

Here's the new average tariff for each of the big six suppliers from today (Thursday 1 October) based on typical use, paying by direct debit:

• British Gas – £1,041/yr 

• E.on – £1,042/yr 

• EDF – £1,042/yr

• Npower – £1,042/yr

• Scottish Power – £1,042/yr 

• SSE – £1,042/yr

This is down from the previous big six average of £1,126/yr for a typical user.

To see if you can switch and save £100s/yr, use our free Cheap Energy Club for a whole-of-market comparison, or try our new MSE Autoswitch service, where we pick your top tariff based on your priorities and switch you year after year.

How does Ofgem's energy price cap work?

The price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).

Under the new price cap level, someone who uses a typical amount of energy on a standard or default tariff pays a maximum of £1,042/yr.

The cap sets a limit on the price of each unit of gas and electricity, so if you use more energy, you pay more; use less and you pay less.

The price cap is reviewed twice a year, with changes coming into effect in April and October. It's set to remain until the end of this year, after which Ofgem will recommend on an annual basis if it should continue, up to 2023.

It's now recommending that the cap is extended until at least the end of 2021 for both standard and prepayment tariffs, with the Secretary of State for Business, Energy and Industrial Strategy to make the final decision on any extension.

The regulator has also launched a consultation to see whether the way it calculates the cap needs to change in light of coronavirus. With people at home much more often, domestic energy use is up – and due to the economic impact, more people are struggling to pay their bills. The cap already allows some headroom for the costs suppliers face due to customer debt, but Ofgem is looking at whether this needs to be increased.