After a turbulent period of sky-high energy bills, things may be starting to stabilise.
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Ofgem’s energy price cap sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy. It was introduced by the government in January 2019.
The aim is to make sure the price you pay is a fair reflection of the wholesale cost. It also ensures energy firm profits are kept in line. The cap is set by Ofgem every three months as the average amount paid by the typical household.
However it does not set a maximum amount for bills. Those who use more than the average amount will pay more, and those who use less will pay less.
Why is the price cap falling?
Prices have fallen to their lowest level since Russia’s invasion of Ukraine in February 2022. The invasion caused a further spike in an already turbulent wholesale energy market, driving up costs for suppliers and customers.
Market volatility led to the cap reaching a staggering £4,279 in January last year. Customers were partly shielded from this by the Government’s Energy Price Guarantee, which limited the average bill to £2,500.
Analysts Cornwall Insight said the lower cap suggested that the UK has, for now, weathered the storm of Red Sea tensions, securing a steady supply of LNG (liquefied natural gas) through the Atlantic.
Good availability of supply in Europe and Asia, in part due to mild weather, also contributed to the price drop.
Will sky-high energy bills return?
Unfortunately, energy prices are not expected to return to pre-Covid levels before the end of the decade at the earliest.
Cornwall Insight warned that prices remain subject to market volatility. The UK’s reliance on energy imports means that geopolitical incidents could continue to have a significant impact on prices.
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HeadlineWhat does Ofgem’s energy price cap mean for my bills?
Short HeadlineWhat does the new energy price cap mean for me?
StandfirstThe typical household energy bill will fall by £122 a year from July, but will remain well above pre-pandemic levels.
Ofgem’s energy price cap sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy. It was introduced by the government in January 2019.
The aim is to make sure the price you pay is a fair reflection of the wholesale cost. It also ensures energy firm profits are kept in line. The cap is set by Ofgem every three months as the average amount paid by the typical household.
However it does not set a maximum amount for bills. Those who use more than the average amount will pay more, and those who use less will pay less.
Why is the price cap falling?
Prices have fallen to their lowest level since Russia’s invasion of Ukraine in February 2022. The invasion caused a further spike in an already turbulent wholesale energy market, driving up costs for suppliers and customers.
Market volatility led to the cap reaching a staggering £4,279 in January last year. Customers were partly shielded from this by the Government’s Energy Price Guarantee, which limited the average bill to £2,500.
Analysts Cornwall Insight said the lower cap suggested that the UK has, for now, weathered the storm of Red Sea tensions, securing a steady supply of LNG (liquefied natural gas) through the Atlantic.
Good availability of supply in Europe and Asia, in part due to mild weather, also contributed to the price drop.
Will sky-high energy bills return?
Unfortunately, energy prices are not expected to return to pre-Covid levels before the end of the decade at the earliest.
Cornwall Insight warned that prices remain subject to market volatility. The UK’s reliance on energy imports means that geopolitical incidents could continue to have a significant impact on prices.
