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Households Could See a Drop in Energy Bills Due to Falling Price Caps

Feb 29, 2020 | Energy

Households Could See a Drop in Energy Bills Due to Falling Price Caps

Some 11 million households could see a drop in their energy bills due to the falling price cap. The default price cap will fall from £1,179 to £1,162 for the summer period, which is from April to September. In addition, the pre-payment meter cap, which protects about 4 million households, is also set to fall from £1,217 to £1,200 per year over the same period.

The resultant fall in the price caps will see some 15 million households’ energy bills fall.

The reason for the reduction in the price caps is due to the fall of wholesale energy prices. The prices were seen to continue falling between August 2019 and January 2020. In addition, gas is in strong supply, with liquified natural gas and healthy gas at record amounts. These are the main factors behind the decrease in wholesale prices.

The market has seen the wholesale energy cost element of the default tariff cap fall from £446 to £408. The reductions helped offset price increases of £22 on other factors such as network charges, operation costs, smart meter costs, and environmental schemes. This has result in a £17 decrease in the default tariff cap.

The default price cap helped save about £1 billion for households protected by the default price cap in 2019.

In spite of these savings, experts are still recommending that households consider switching energy suppliers. Switching from the default tariff could save these households up to £305.

During the summer, Ofgem will conduct a review on behalf of the Secretary of State, to see if market conditions would allow for the default price cap to be extended or lifted past 2020.

Jonathan Brearley, chief executive of Ofgem, said, “The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market.

“Suppliers have been required to become more efficient and pass on savings to consumers. In its first year, the cap is estimated to have saved consumers £1 billion on average on their energy ills and switching rates have hit record levels.

“Today’s announcement is further good news for the 15 million households covered by both price caps who will see their energy bills fall in April. Households can reduce their energy bills further by shopping around for a better deal.”

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