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Ofgem’s price cap was reduced from £1,690 to £1,568 on 1 July 2024. This cap will remain in place until 30 September. From 1 October, the cap will rise to £1,717.
The price cap is not an overall limit on your bill, but rather limits the unit cost of energy, so the more you use, the higher your bills will be. If you are an average energy consumer, your bills are currently at their lowest since the Russian invasion of Ukraine in early 2022.
However, the July cap is still around £400 above pre-coronavirus pandemic levels. With energy prices rising in October, the question is, what do experts expect for next year – and is now the right time to make changes?
🤓 Nerd tip
Since January 2024, Ofgem has calculated the price cap based on revised typical energy consumption values. These have changed from 2,900 kWh to 2,700 kWh for electricity and from 12,000 kWh to 11,500 kWh for gas.
One reason for this change could be that households have become more energy efficient. But it also reflects the fact that many households are reducing their energy consumption to counteract rising prices.
Why are energy prices so high?
Our energy bills are higher than before the coronavirus pandemic because wholesale gas prices – the amount energy suppliers pay for gas – have skyrocketed.
Coronavirus lockdowns, cold winters and geopolitical issues such as Russia’s invasion of Ukraine in early 2022 and the ongoing conflict in the Middle East are just some of the factors that have pushed up energy prices.
When wholesale gas prices rise, suppliers have to pay more for energy.
Suppliers pass these higher costs on to households by increasing the price they pay for the electricity they use, but the energy price cap set by Ofgem limits the amount of costs they can pass on.
Although wholesale energy prices have largely declined in 2023, they were still higher compared to previous years. When the price cap is raised, as it was in January and is expected to be in October, it usually reflects the ongoing volatility in gas prices.
According to Ofgem, energy prices are not expected to return to pre-2022 levels and volatile gas prices are likely to be a problem in the long term.
When will the energy price cap change?
The energy regulator Ofgem sets the energy price cap to ensure that customers are charged a fair price for their energy. It is reviewed every three months and any changes come into effect in January, April, July and October.
The cap is the maximum amount that suppliers can charge households for each unit of gas and electricity consumed. It only applies to variable and prepayment tariffs, not fixed-price tariffs.
From 1 July to 30 September, the price cap for a typical household paying by direct debit is £1,568. Your actual bill will depend on how much energy you use, where you live and how you pay for your energy.
From 1 October to 31 December, the price cap for a typical household is £1,717.
This cap only applies to England, Wales and Scotland. In Northern Ireland, the energy market works differently and there is no corresponding price cap.
Note that the price cap does not represent the maximum amount you can pay for your energy. It limits the cost of each unit of gas or electricity you use, not your total bill.
What is the upper limit if I have a prepaid plan?
The price cap for prepaid customers has fallen from £1,643 to £1,522 for the period July to September.
From October to December, the amount for prepaid customers increases to £1,669.
Ofgem has ensured that prepayment customers who buy gas and electricity from the same supplier continue to pay less than direct debit customers. To achieve this, the standing charges for prepayment customers have been reduced, saving them around £49 per year, while direct debit customers pay £10 more per year.
Are energy prices falling?
Following the price cap in October, independent energy analysis company Cornwall Insight expects the price to rise slightly again in early 2025.
However, it is also said that the ongoing conflict between Russia and Ukraine could lead to an even sharper increase in wholesale gas prices.
Cornwall Insight does not believe the energy market has properly recovered from the post-pandemic energy crisis, making it particularly sensitive to global events.
So while Ofgem can lower the price cap if wholesale gas prices fall, increases in the cap reflect those higher wholesale prices.
Should I fix my energy?
With the reduction of the price cap over the last twelve months, more and more providers have started to offer fixed price tariffs for new and existing customers.
Some tariffs could be cheaper than the price cap due to come into force in October. Jonathan Brearley, chief executive of Ofgem, has said customers should “shop around” for money-saving deals.
Fixed pricing may be worth considering if you find a deal that beats October’s price cap and you’d rather know exactly what you’re paying for your electricity each month. Bear in mind that Cornwall Insight also predicts that the energy price cap could rise again in early 2025.
You can compare tariffs and receive a personalized offer based on your energy consumption. Be sure to check the tariff conditions and any exit fees that may apply.
However, there are limitations to setting prices. Not every plan or offer is available to new customers, meaning you may already have to work with the provider to set your prices.
The determination may include additional fees or requirements, such as purchasing an additional service from the provider or managing your account online.
When choosing a fixed rate tariff, you should also consider how comfortable you are with the fact that the cap may go down rather than up. If this happens, you may end up paying more for your electricity than if you had chosen a variable tariff or waited for a cheaper fixed rate tariff. And depending on the tariff, the savings may be small.
For fixed tariffs, typically for 12 months, you need to consider price trends over the course of the year. However, as the wholesale energy market remains volatile, there is no easy answer.
If you’re already locked into a fixed price contract that’s more expensive than the price cap, it might be worth checking whether you can switch to a cheaper variable tariff or a cheaper fixed price contract. However, if you decide to cancel your current fixed price contract, check whether you’ll have to pay any penalty fees.
” MORE: Explanation of energy tariff types
What happens if I can’t pay my energy bills?
Although inflation has slowed, the energy price cap is still higher than before the coronavirus pandemic.
With living costs at their financial limits for many families, some may find it difficult to build an emergency fund to help them weather financial shocks.
If you’re able to, reducing your energy use could help you save money on your bills. But it’s possible that this isn’t an option. If you’re struggling to pay your energy bills, you should ask for help as soon as possible.
You can contact your energy supplier and tell them you’re having trouble paying your bills – you may be able to agree a new payment plan. If you can’t reach an agreement and are paying for your electricity by direct debit, your supplier may want to switch you to a prepaid tariff.
Some energy suppliers offer grants and hardship funds as well as advice, so it’s worth checking whether you’re eligible for support from your provider.
Although currently closed, there are government programs that support those in need throughout the winter, including:
- Warm Home Discount
- Winter fuel payment
- Cold Weather Payment
Local grants may also be available. Check with your local council to see if they can offer assistance.
” MORE: Help if you can’t pay your energy bills
If you are having problems with your finances and debt, you can also contact the following charities for help and advice:
” MORE: How debt relief organizations can help
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