The energy regulator has lowered winter energy bills for 15m UK homes by reducing its energy price cap to record lows after wholesale energy market prices tumbled during the coronavirus pandemic.
Ofgem will lower the cap on default dual-fuel energy tariffs for 11m households by £84, from an average of £1,126 a year to a record low of £1,042 from this October. It will also lower the cap on energy bills for customers using pre-payment energy meters by an average of £94 a year, from £1,164 to £1,070 a year.
The energy price cap will fall to its lowest level since it was introduced in January 2019 after the impact of the Covid-19 pandemic slashed demand for energy, causing gas and electricity market prices to fall to historic lows.
Ofgem adjusts the cap on energy bills every six months to ensure fair energy bills, which reflect energy company costs. These have fallen steeply because of the lower cost of buying gas and electricity from the wholesale markets in advance.
However, Ofgem’s cuts fall short of industry forecasts, which had suggested a cut of at least £85 and up to £100 a year for standard variable energy tariffs.
Michael Lewis, the chief executive of E.ON UK, said he expected the price cap to fall by “at least £85 from this autumn” while analysts at Cornwall Energy, a consultancy, predicted a drop of potentially up to £100.
Jonathan Brearley, the chief executive of Ofgem, said: “Millions of households, many of whom face financial hardship due to the Covid-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”
Ed Dodman, a director at the Energy Ombudsman, said the price cap cut is a “much-needed financial boost for millions of households, at a time when many people are struggling due to the economic impact of Covid-19 and lockdown”.
Dodman urged customers using a standard variable energy tariff to switch to a better deal to save money on their energy bills but also cautioned households to consider the customer service credentials of energy companies, too.
“Of course price matters, especially at the moment, but customer service is important, too,” he said.