The energy price cap is set to decrease by £20 per month, as announced by the industry regulator. This 12% reduction will be implemented from 1 April, resulting in an annual energy bill of £1,690 for a typical household. The decrease in the cap is attributed to lower wholesale prices, driven by a milder winter season and higher stockpiles of natural gas across Europe. Despite this relief, the current cap remains more than 50% higher than pre-crisis levels. In addition to the price cap reduction, households will also face a temporary additional charge of £28 per year to support struggling customers with a record £3.1bn in bill arrears. Prepayment meter customers, however, will not be affected by this temporary charge.
Ofgem, the regulator, is taking action to address the significant amount of bill arrears and to bridge the gap between the charges paid by prepayment meter customers and other households. Customers on prepayment meters are expected to save around £49 per year, while direct debit customers will see a £10 increase in their annual bills. Despite these changes, bills are projected to reach their lowest level since Russia’s invasion of Ukraine in February 2022, which disrupted gas supplies to the continent. The energy market has been grappling with higher prices and supply chain challenges, leading to questions about the effectiveness of the price cap in promoting competition.
Market experts have expressed doubts about a return to pre-crisis energy prices, given the new geopolitical realities and disruptions in the global energy supply chain. The price cap, initially introduced to prevent unfair charges, has now become a point of contention in the industry. Ofgem is collaborating with the government to evaluate the future of the price cap and its implications for market competition. The aftermath of the supplier crisis in 2021 has significantly increased the adoption of the price cap among households, with fixed-term deals becoming scarce.
Research indicates that nearly half of households view the price cap as a hindrance to accessing competitive fixed-term offers from suppliers. A considerable portion of consumers have stopped actively seeking better energy deals due to the restrictions imposed by the cap. Industry experts suggest that Ofgem’s adjustments to the price cap bill could enhance the availability of tariff options for consumers. While the removal of the Market Stabilisation Charge is seen as a positive development, concerns have been raised about the extension of the Ban on Acquisition-only Tariffs for another year. Consumers are advised to explore alternative tariff options and monitor the evolving energy market landscape for potential savings.