People have been struggling when it comes to bills during the cost of living crisis (Picture: Getty)
Ofgem, the energy regulator has today announced a sharp drop in the energy price cap – which limits the amount energy companies can charge per unit of energy.
This will come as welcome news to many, as energy bills have skyrocketed over the past year, amid the cost of living crisis.
The government’s energy bills support came to and end last month which may have left many people worried about being able to pay their bills.
So just what is the new energy price cap? And how will it affect bills?
Let’s find out.
What is the new energy price cap?
Ofgem has announced that the new energy price cap is £2074.
This has fallen from £3,280 in April – when Ofgem released its last price cap, and £4,279 at the beginning of 2023.
Although this is a significant drop, it is still far higher than when the price cap was introduced in January 2019, when the typical annual household energy bills was £1,137.
The new cap was announced on May 25 (Picture: Jacob King Provider: PA Source: PA Media(Credits: PA)
Consultancy Group Cornwall Insights has predicted that household bills will remain high for years to come, stating: ‘Despite the cap falling from the sky-high prices of the past two years, the figure remains over £1,000 per year more than the price cap levels seen prior to the pandemic.
‘We do not currently expect bills to return to pre-2020 levels before the end of the decade at the earliest.’
On the new cap, Emily Seymour, Which? Energy Editor, said: ‘The news that the energy price cap will come down to £2,074 a year for the typical household from July is positive, but many will understandably be confused about what exactly this means for them and their monthly outgoings.
‘While the new price cap on variable tariff rates will see typical bills drop by around £500, energy bills will be almost double the amount they were before the energy crisis began and these prices will still be unaffordable for many households. If you are concerned about struggling to pay higher bills, there is help available. Speak to your energy provider about a payment plan you can afford and check to see if you qualify for any government schemes.
‘If prices start to stabilise, we may see some providers offering competitive fixed price energy deals for the first time in well over a year, so it will be worth doing a bit of research to see if there’s a deal that could be cost effective while also offering good customer service and low exit fees.’
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Since October 2022, household energy bills not been as high as the price cap, as they have been protected by the Energy Price Guarantee, which acts as a discount on top of the price cap.
The EPG currently limits the annual bills of a typical household to £2,500, however, this will increase to £3,000 from July 1.
The increase will not make much of a difference to bills though, as the price cap is now lower than the EPG.
Over the winter, from October 2022-March 2023, Brits were given £400 off their energy bills (split into six monthly payments of £66 and £67).
However Environment Minister Therese Coffey has said that there are currently no plans for more energy bills subsidies.
She said: ‘The chancellor set out our plans several months ago on what was happening there and I am conscious there is only a limited amount going to every bill payer.’
‘But I think that the critical thing that people will be expecting from the government is getting that electricity pipeline flowing within our own country rather than constantly being reliant on aspects of the link to the gas prices in the world.’
The Energy Price Guarantee will rise to £3,000 from July 1 (Picture: Getty)
How will the price cap drop affect bills?
The new energy price cap means that typical annual household bills are now capped at £2074.
Dr Craig Lowrey, from Cornwall Insight, has said that this is good news for bill payers, who should ‘see bills drop by around £450 compared to the existing levels of the energy price guarantee, with bills currently predicted to stay relatively stable over the next nine months’.
However, although the energy price cap has dropped significantly since April, Money Saving Expert’s Martin Lewis, has warned that Britons will ‘feel no real benefit’ from the drop.
He said that this is because, due to the £400 winter energy bills support ending in March, people will now be paying the same for their energy bills as they were over the winter.
He said: ‘It is worth remembering in April everybody lost the [£400] winter bill support so in practical terms, people aren’t going to be feeling any real benefit.
‘They are going to be paying the same as they were over winter.’
MORE : Food prices will be worse than energy bills in ‘new phase’ of cost of living crisis
MORE : All money changes still to come in 2023 – from interest rates to energy bills
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