Ofgem has slashed the price cap on energy bills after wholesale energy prices fell further, it announced on Friday.
The energy price cap, which does not apply to consumers in Northern Ireland, is the maximum amount energy suppliers can charge you for each unit of energy if you’re on a standard variable tariff.
Falling prices are welcome news for households struggling amid the cost of living crisis, though bills will remain significantly higher than pre-pandemic levels.
Here’s what you need to know.
What is the change mean?
The July to September 2023 price cap level meant the average household on a standard variable tariff was paying £2,074 a year.
The energy regulator said it was cutting the price that a supplier could charge for gas from 6.9p per kilowatt hour (kWh) today to 6.89p from 1 October.
The price of electricity will fall from 30.1p per kWh to 27.35p, Ofgem said.
This means that the average household bill will end up at around £1,923 per year, according to the regulator’s calculations. Customers on prepayment meters will pay £1,949 on average.
Because the cap decides the per unit charge, households that use more will pay more.
This is based on an estimate that the average household uses 2,900 kWh of electricity and 12,000 kWh of gas.
Why has the price cap fallen?
The price cap is meant to fall as wholesale energy prices falls across the market, allowing consumers to benefit through reduced bills.
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.”
The drop in the cap appears at first glance to be good news for millions of households.
Last winter the cap was de facto superseded by the Government’s energy price guarantee which kept the average household’s bill at £2,500.
But on top of that the Government was also paying around £66 per month towards each household’s energy bill.
This support is not there this winter, meaning that many households will be paying more every month this winter than they were last.
Mr Brearley said that now that energy prices were easing, Ofgem had allowed suppliers to earn a little more money off their customers.
“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,” he said.
Mr Brearley is one of many to question the effectiveness of the price cap and point towards the benefits of a so-called social tariff, which would offer cheaper gas and electricity to those most in need.
Without that, experts expect that average energy bills will remain at around £2,000 for vulnerable households for years to come.