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How is the Ofgem energy price cap due to change in April 2024 and how will this affect my bills?

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Ofgem (the Office of Gas and Electricity Markets), is the regulator for the electricity and gas markets in the UK. The energy price cap is a mechanism which was introduced by Ofgem in 2019 to protect consumers in England, Wales and Scotland (Northern Ireland has a separate energy sector) on pricey variable tariffs from paying excessive fees for their energy.

The energy price cap sets a maximum rate that suppliers can charge for each unit of energy (per kilowatt-hour) for households on default tariffs and a maximum daily standing charge, which is the payment you make to keep your home connected to the energy grid. Ofgem reviews and updates the energy price each quarter, in January, April, July and October, to reflect changes in wholesale energy costs. The cap is based on a range of factors, including wholesale energy prices, network costs, policy costs, and supplier operating costs.

In 2022, soaring global gas prices caused primarily by the Russian invasion of Ukraine saw a significant rise in the Ofgem price cap (which hit £4,279 from 1 January to 31 March 2023). From 1 October 2022 – 30 June 2023 the UK government introduced the Energy Price Guarantee alongside other initiatives such as the winter fuel supplement and the energy bill relief scheme to try and mitigate the impact of rising energy bills on UK households and businesses. As a result, the capped cost of energy bills for the average dual fuel household was £2,500, increasing to £3,000 from 1 April 2023.

Whilst the Energy Price Guarantee was extended from 1 April 2023 – 31 March 2024 by Chancellor Jeremy Hunt in the 2022 Autumn statement, the Ofgem price cap fell to £2,074 in July 2023, meaning the Energy Price Guarantee was no longer needed.

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From October – December 2023 the Ofgem price cap dropped to £1,834. In January 2024, the cap increased by around 5% thanks to higher wholesale costs hitting suppliers. From 1 January to 31 March 2024 this meant a rate of 7.42p per kWh for gas prices and 28.62p per kWh for electricity, so a typical household on a dual fuel tariff paying by direct debit pays the equivalent of £1,928 annually.

Unfortunately the Chancellor did not announce any further support for energy bills in the Autumn Statement on 22 November 2023 or the Spring Budget on 6 March 2024. The 8.5% increase to pension payments and 6.7% increase to benefit payments was touted as a means to compensate increased energy bills for those households who receive these payments.

So how is the price cap due to change in April 2024?

As of 1 April 2024, the energy price cap will be set to a maximum of 6p per kilowatt hour (kWh) for gas prices and 24p per kWh for electricity. According to Ofgem, this means that from 1 April – 30 June 2024 the ‘average’ dual fuel household who pay for their energy by direct debit will pay around £1,690 annually, a decrease of around £238 (12%) from the January 2024 cap and the lowest price cap since the beginning of 2022.

According to many industry sources, the price cap is set to fall further in July too, with the announcement of the next price cap due on 24 May 2024.

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However, whilst the energy price cap is designed to provide some protection for consumers on default tariffs, it’s important to note that households can often find better deals by switching to fixed-rate tariffs or deals offered by different suppliers, so do keep track of your personal energy consumption, shop around for the best deal and make sure your home is as energy efficient as possible to keep your energy bills to a minimum. There are also a number of quick fixes you can make for free, such as remembering to turn your appliances off standby mode, turning lights off when the room is not in use, using your washing machine at lower temperatures and not overfilling your kettle. These may sound like small changes, but they all add up.

Keeping your home as energy efficient as possible can also have a positive impact on its value too, with over 60% of house hunters saying energy efficiency is a priority in a new home. Head to the Energy Savings Trust website for more information on how you might be able to invest in your home and improve your property’s energy efficiency.  

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