Energy bills to fall by 7% as new Price Cap is announced – what you need to know
Energy regulator Ofgem has this morning announced the new Energy Price Cap, with prices set to fall by 7% on average from October. Despite the drop, energy bills will still likely be more expensive than last winter. We've full info below.
The Price Cap changes every three months and has been falling due to lower wholesale energy prices in recent months. The latest 7% drop from October follows a 17% fall in July.
From 1 October 2023, the cap will be set at an average £1,923 a year for a typical dual-fuel household paying by direct debit, affecting all those on standard variable tariffs (essentially everyone not currently on a fix). But remember, it's the rates that are capped, so use more and you pay more.
While falling energy bills will be a relief for many, most will still be paying more for their energy than they did last winter when you factor in the £400 energy bill support we all got from the Government. So far, no additional support has been announced by the Government for energy bills this winter – something Martin and MSE have pushed Energy Secretary Grant Shapps on.
Prepayment rates will also drop in October by 7%, factoring in the Government subsidy that is applied to the prepayment Price Cap after it committed to bring prices in line with the direct debit Price Cap. If you pay on receipt of a bill, prices are set to fall by about 7% to £2,052 a year for a typical home.
We've updated our What you'll pay from October calculator with the new rates so you can check how much YOUR bill will drop.
If you're struggling, see our full Energy bills help guide for info on the all the support available.
What are the new unit rates and standing charges from October?
Under the Price Cap, there's no actual cap on what you pay, instead it's a cap on the maximum standing charge and unit rates your provider can charge, so if you use more, you pay more.
You can see the average unit rates and standing charges until Saturday 30 September and what they will be under the Price Cap from Sunday 1 October below. We've also updated our Price Cap unit rates guide with full regional rates.
NEW Energy Price Cap
rates from 1 October to 31 December 2023
Current Energy Price Cap
rates from 1 July to 30 September 2023
Unit rate: 6.89p per kilowatt hour (kWh)
Standing charge: 29.62p per day
Unit rate: 7.51p per kWh
Standing charge: 29.11p per day
Unit rate: 27.35p per kWh
Standing charge: 53.37p per day
Unit rate: 30.11p per kWh
Standing charge: 52.97p per day
Standing charges will rise again slightly from October
Despite the fall in the amount we'll pay under the Price Cap from October, the high daily standing charge – that we all pay just for the facility of having a gas and electricity connection – remains high. So perversely the less you use, the less you save.
Currently, under the July Cap, it's £300 a year before you even use any gas or electricity, if you pay by direct debit. From October, it will rise to £303 a year. We've asked Ofgem why standing charges have increased again, and we'll update this story when we hear back.
Martin has pushed Ofgem on this – and challenged chief executive Jonathan Brearley on it on Good Morning Britain shortly after the July Price Cap was announced – to little avail, though Ofgem has recently consulted on operating costs which could impact this. Martin and MSE responded to this consultation, but there's currently no date yet for Ofgem to report back on its findings.
How does the Price Cap work?
The Price Cap sets a limit on 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).
As the Cap limits the price providers can charge for each unit of gas and electricity, if you use more energy, you'll pay more, use less and you'll pay less.
From 1 October 2023, the Price Cap will be set at an average £1,923 a year for a household paying by direct debit, down from the current rate of £2,074 a year based on typical use.
What will happen to prices in the future?
Sadly, the lower prices aren't guaranteed to last that long, as each Price Cap is only in effect for three months.
The current predictions are that after the October fall, it'll rise by 6% in January 2024 to £2,033 a year for a typical household, drop 3% in April 2024 to a typical £1,964 a year, fall 2% in July 2024 to £1,917 a year and then go back up by 3% to £1,975 a year in October 2024 – though the further out you go, the more it is crystal-ball gazing. If the predictions are right, it'll still leave people paying close to double what they did before the energy crisis hit in autumn 2021.
Is it worth switching from the Price Cap to a fixed deal?
The one bright spark in the energy market in recent weeks has been the return of a handful of tariffs that undercut the current Price Cap.
Based on current Price Cap predictions, we reckon it's worth considering a fixed deal if it's priced under the current July Price Cap, especially if you value certainty over what you'll pay. But it's a complex decision, so for everything you need to think about, see Stick, switch or fix your energy tariff? for a rundown of all the switching options.
What does Ofgem say?
Ofgem chief executive Jonathan Brearley said: "It is welcome news that the Price Cap continues to fall. However, we know people are struggling with the wider cost of living challenges and I can't offer any certainty that things will ease this winter.
"That's why we've introduced new measures to support consumers, including reducing costs for those on prepayment meters, and introducing a prepayment meter code of conduct that all suppliers need to meet before they restart installation of any mandatory prepayment meters.
"There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning. With the small additional allowance we've made to earnings before interest and tax, this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we'll be introducing a consumer code of conduct which we will look to have in place by winter.
"This code will ensure there are clear expectations of supplier behaviours, especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this, but I want to see this become the norm in such an essential sector that has such a big impact on people's lives."