Published on: 13 Nov 2018
The UK energy regulator Ofgem has confirmed that a new price cap will come into force on 1 January.
As a result millions of households could see their energy bills fall early next year.
Ofgem says the cap will be set at £1,137 per year for a typical dual fuel customer paying by direct debit.
The price cap will force suppliers to cut the price of their default tariffs to the level of or below the cap, forcing them to scrap excess charges, saving consumers around £1 billion in total.
The cap aims to pressure energy companies to scrap excess charges for people on poor value default deals and is based on a typical dual fuel customer paying by direct debit.
How much could you save?
According to Ofgem’s calculations British Gas customers could save around £69 a year in total. However, for those on the most expensive tariff, for example, Scottish Power could save up to £121.
For individual customers the savings will depend on a few things. For example the price of their current tariff, whether they have both gas and electricity and how much energy they use on average.
Dermot Nolan, chief executive of Ofgem, says: “The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes."
He adds: “Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible.”
Could the cap rise?
According to Ofgem the price cap level will be reviewed and updated biannually in April and October. This will be based on the latest estimated costs of supplying both gas and electricity, including wholesale energy costs.
Stephen Murray, energy expert at MoneySupermarket, says: “That means we could be looking at three months’ gain and then 12 to 18 months of long term pain for people who do nothing and let the regulator control their bills.”
According to reports from various money expert sites there are still cheaper tariffs currently on the market and by switching to a competitive fixed rate tariff consumers could save up to £200 immediately, which is a strong incentive as winter approaches.
Richard Neudegg, head of regulation at Uswitch.com, says: “Consumers should not be lulled into a false sense of security - there is a very good chance that the price of standard tariffs will change three times over the next 12 months, and potentially for the worse rather than the better.”
“Initial savings could be wiped out as early as April when rising wholesale costs may force the cap to increase, so standard tariff energy customers can only rely on three months of savings - averaging around £19 - before the cap potentially goes up.”
For many it may be a case of ‘take the money and run’. Switching tariffs now could give you a quick injection of cash heading into winter. On the other hand the cap may well end up working in your favour, depending on supply and demand.
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