Energy value cap to fall: How a lot you’ll save and whether or not to repair your tariff in 2024

From July a typical household will pay £1,568 a year for their energy bills, following a fall in the “price cap”.

This is a saving of £122 over the course of a year – or around £10 a month – the energy regulator said – meaning households can expect to pay significantly less for their energy this summer. It is around £500 less than its level in July last year when it was £2,074.

The fall was attributed to a significant decline in wholesale energy costs since mid-November. However the drop in prices was less than experts had hoped: analyst Cornwall Insight had previously predicted the cap would fall even further to £1,463.

Markets were spooked late last year when the war in Gaza hit Israel’s gas fields, reducing output to Egypt where it is processed into liquefied natural gas (LNG) and impacting supply.

Cornwall Insight said disruptions to the Balticconnector pipeline between Finland and Estonia, and industrial action at gas production facilities in Australia were also affecting prices.

Ofgem’s new cap means energy bills are the lowest they have been for two years.

Last year, a government-subsidised discount knocked £400 off every home’s energy bills in the five months between November 2022 and March 2023.

But with this help no longer available and standing charges costing as much as £300 a year, some 7.2 million billpayers endured the most expensive winter on record, according to the Resolution Foundation think tank.

Here, The Telegraph covers what the energy price cap is, whether it’s time to consider a fixed-term deal, and what you can do now to protect yourself from an energy price rise this winter.

What is the energy price cap?

The price cap limits what energy providers can charge customers on a “standard variable tariff”. It does not apply to fixed-rate deals. Most households are currently on variable deals as providers were unable to offer competitive fixes throughout the energy crisis.

The cap is not a limit on the amount households will pay each year. The rate is based on usage – so use more, and you’ll pay more.

The cap is determined by wholesale costs and is revised every three months. The price cap rose from a low of £1,042 in February 2020 to £1,971 in April 2022. As Russia’s war in Ukraine intensified, driving up wholesale prices, the cap continued to rise – eventually reaching a peak of £4,279 in January 2023.

This prompted the Government to intervene in September 2022 by introducing the Energy Price Guarantee, a similar cap on energy bills that limited the average household bill to £2,500 a year regardless of the turmoil in the wholesale market.

From July, when the Ofgem-set price cap finally fell below the government-backed EPG, households on variable deals automatically reverted to the former.

It is important to understand the price cap does not limit the amount you will pay over the course of a year. The amount of energy a typical household uses in one year is known as the typical domestic consumption value (TDCV) – and the headline figure of £1,690 is simply how much the TDCV costs under current market rates.

The cap simply fixes the rates at which you are charged for your gas and electricity usage, as well as the standing charges for both.

Standing charges are billed to households at a daily rate regardless of how much energy they use – and these will remain unchanged so that households pay roughly £6.40 a week, or £334 a year for a house using electricity and gas.

How much will I save when prices go down?

From July 1 to September 31, the unit rate for electricity will fall from 24.50p to 22.36p per kWh. Gas will fall from 6.04p to 5.48p per kWh.

In short, your electrical appliances will cost around 9pc less to run from April than they do now, and your heating (if gas) will also cost around 9pc less.

To take an example of how the price cap affects your own usage, an electric kettle of water costs around 4p to boil under the April price cap.

The average Briton drinks 884 cups of tea a year, according to a 2015 YouGov survey, meaning if you were to boil a fresh kettle of water for every cup, that would cost you £35.36. Under the July cap, which lasts from July 1 to September 31, this will cost you £32.20 a year – saving you £3.16, although costs can vary slightly depending on the power use of your kettle.

Electric showers will cost 16p for every five minutes, or £1.15 a week, assuming one shower a day – this doubles to £2.29 for 10-minute showers. A family of four doing this would rack up £9.17 a week on showers alone.

Under the July cap, washing machines, tumble dryers and dishwashers will remain expensive despite falling rates. A typical eco cycle on a fully loaded washing machine will cost 28p – and a 90-minute cycle on a washing machine will cost 96p – and an hour’s ironing costs 33p on top of that.

One full cycle on a tumble dryer with a full load will cost £1.06 under new rates, while an eco cycle on a dishwasher will cost 20p, according to Citizens Advice.

Easy ways to save money on energy bills

Though bills are typically lower in summer regardless, the price cap is forecast to rise again in October, making this an ideal time to sort out your home’s energy efficiency if you haven’t already.

There are some simple things you can do now to stand you in better stead for when temperatures drop.

Get your boiler serviced

Getting your boiler serviced once a year is a good way to make sure it’s running as efficiently as possible. Many people won’t be thinking much about their boilers during the summer months, but it can be a good time to book a service – some engineers may be less busy, and may even offer “off-peak” prices.

What’s more, if something is found to be wrong with your boiler, you won’t need to worry about bringing in energy-guzzling electric heaters should you need to switch it off for repairs.

Sort your insulation

A quarter of heat is lost through the roof of an uninsulated home, whether you live in a tiny cottage or a sprawling mansion. Installing loft insulation only costs between £400 and £1,200 for the average house and should pay for itself many times over in its 40-year lifetime, something well worth considering while bills remain high.

Should I buy a fixed-tariff deal?

Before the energy crisis, households were used to shopping around for competitive fixed-price deals.

However, the energy crisis upended the market, leaving variable rates governed by the price cap as the only viable option. Fixed rates became so expensive that providers stopped offering them altogether.

However, as wholesale prices have cooled, a number of fixed-rate deals have come on the market after years of being unavailable.

Myron Jobson, of analyst Interactive Investor said: “The fall in energy bills could prompt a much-needed return of decent competition in the energy market, with competitive fixed-price deals overdue for a comeback. 

“However, suppliers might not be in a rush to offer more competitive deals, and any return of competition to the market is likely to be slow.”

Gareth Kloet, of comparison site GoCompare, said the change in price cap was a good opportunity for households to assess whether they were paying a competitive rate for their power use.

He said: “If you are thinking about switching your energy deal, consider whether you will have to pay any early exit fees if you leave before your current deal is up. Looking at all of your options on a comparison site is an effective way to see which options are available to you at the moment.”

Energy providers have ramped up exit fees in recent years, meaning that a household looking to ditch an unfavourable rate will likely pay £150 – £75 per fuel.

Several providers have introduced fixed rates that are significantly cheaper than the current cap, but such fixes may end up costing consumers more in the long run.

Will Owen, Uswitch energy expert, said: “If you’d prefer to avoid the uncertainty of rising costs in winter, now is a good time to think about taking a fixed energy deal, which would let you lock in rates while prices are cheaper.

“Fixed energy tariffs are the cheapest they’ve been since summer 2021 and there are some great value deals currently worth considering.”

Proponents of fixed-rate deals argue they offer long-term security, as unlike variable tariffs they cannot change throughout the duration of the deal. This could shield households from shocks in the wholesale market.

Analysts across the sector predict the cap will rise again when it is reviewed in October, meaning consumers who lock in at rates comparable to the current cap may end up saving money in the long run.

Dr Craig Lowrey, of Cornwall Insight, added: “This further reduction in the price cap is a welcome relief for consumers after a challenging period of high energy costs. However, the anticipated rise in bills as we move into the winter months, emphasises the continued volatility of the market and the importance of providing protection for vulnerable households.

“It is clear the cap in its current form is not going to bring down bills to pre-crisis levels. However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future.”