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Ofgem energy price cap: how is it changing?

Sky-high bills have made the price cap set by the energy regulator Ofgem a key number for British households. The good news is that from Sunday, the cost of the average annual dual-fuel bill in Britain will drop below £2,000 a year for the first time since April 2022 as a new, lower cap kicks in.

The bad news is there is no repeat of the £400 universal bill subsidy this year, and the End Fuel Poverty Coalition says the financial squeeze created by the ongoing cost of living crisis means “people will still feel the pain of high energy bills this winter”.

How is the cap changing?

On 1 October, the price cap set by Ofgem for households in England, Wales and Scotland is being reduced to £1,834 a year for a typical annual dual-fuel energy bill, from its previous figure of £2,074.

A large part of that reduction is down to a change in how the regulator calculates how much gas and electricity the average household consumes in a year. Using the old methodology, the cap will only fall by 7%, or £151, to the equivalent of £1,923 a year. That figure is slightly higher for customers who have to prepay meters or pay by cash or cheque, at £1,949 and £2,052, respectively.

The £1,834-a-year cap covering October to December is based on new Ofgem calculations that assume households now use 7% less electricity and 4% less gas, having cut back consumption in the cost of living crisis. When it was announced last month, the regulator gave a headline figure of £1,923 a year, using the old methodology to help comparisons with previous quarters. In future, only the new system will be used.

So will I pay no more than £1,834 this year?

Not necessarily. That is how much a “typical” household would pay for its energy if the new rate were applied for a full year.

The cap dictates the maximum a supplier can charge for each unit of energy as well as the maximum daily standing charge (flat daily fees, often likened to line rental for a phone, that is charged for a gas and electricity connection regardless of how much or little energy people use). Bills could be higher or lower because they are based on your actual usage rather than average consumption.

Moreover, the level of the Ofgem cap changes every three months. On Friday, the leading forecaster Cornwall Insight predicted the rate would climb to £1,898 a year for the typical home from January.

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