Millions of British households are set to benefit from cheaper energy bills starting in October, as the British energy markets regulator, Ofgem, has once again lowered the price cap to reflect a decrease in wholesale power and gas prices. Ofgem announced on Friday that the price cap for household energy bills will be reduced by approximately 7% from October 1st, bringing it down to £1,923 (€2,241) per year for a typical dual-fuel household. This reduction is expected to save households an average of £151 (€175) compared to the previous quarter.
The new price cap represents the lowest level seen since October 2021 and is a result of further declines in wholesale energy prices. The market has been stabilizing, and energy suppliers are beginning to recover financially after experiencing four years of losses. Last year, wholesale power and gas prices reached record highs in Britain and Europe due to the impact of Russia’s invasion of Ukraine, which disrupted gas supplies. While prices have since fallen by around 85% for gas and 80% for power from their peak in the first quarter of last year, there is still some price volatility. Consequently, the price cap remains significantly higher than the average before the energy crisis began.
Jonathan Brearley, the Chief Executive of Ofgem, expressed his satisfaction with the ongoing decrease in the price cap but acknowledged that people are still facing challenges related to the overall cost of living. He added that he cannot provide any certainty that these challenges will ease during the upcoming winter season.
The price cap was introduced in 2019 to protect consumers, and approximately 29 million customers are currently on standard rate tariffs that are covered by this cap. Ofgem determines the cap using a formula that takes into account suppliers’ network costs, environmental and social levies, and wholesale energy prices, with the latter being the most significant factor. The regulator reviews and adjusts the cap every quarter to reflect changes in the wholesale market.
In addition to the price cap reduction, Ofgem has implemented measures to reduce costs for customers who use pre-payment meters and to provide extra support for those at risk of disconnection from the energy network.
Overall, the latest price cap reduction by Ofgem is welcome news for British households, as it will help alleviate some financial burden related to energy bills. However, the regulator acknowledges that there are still broader challenges when it comes to the cost of living, and uncertainties remain as the winter season approaches.