Energy Bills Set to Fall – But Be Aware of Overpaying
The price of energy bills is set to fall for millions of people in the UK, due to Ofgem’s lowering of the price cap. The new energy prices will begin in October, when the weather becomes cooler.
While millions of customers will see the lowered prices as a huge lift to their budgets, they may be lulled into thinking their energy bill will be lower, when in fact, their energy bill could be even more expensive this winter.
Possible Savings Under the Price Cap
About 11 million households in the UK, on standard tariff rates, could see their bills drop as the new price cap comes into effect. The typical customer could see a maximum price fall of £75 a year—from the current rates of £1,254 to £1,179 a year.
Why the Decrease in Energy Prices?
Ofgem, the regulatory body for gas and electric markets in the UK, lowered the price cap due to falling energy market costs. As the result of lowered energy markets, suppliers are required to pass on the savings to their customers as the cost to provide energy (gas and electricity) falls.
In other words, suppliers face lower costs to bring energy to your home. Most energy customers don’t realize that these costs make up to almost half of their monthly energy bills.
How Do Price Caps Work?
The first energy price caps were introduced by Ofgem back in January 1st of this year, due to government pressure put on energy companies to keep them from overcharging their customers. Price caps were set up to help regulate energy prices, making it easier for households to pay their energy bills.
Price caps were also set up to benefit customers who are vulnerable and have trouble paying their energy bills. These households are usually set up to pay what is called a standard variable tariff or a default tariff. However, these most vulnerable customers could face higher prices, without even realizing it.
The Problem with Energy Caps
While at first glance the drop in the price of energy can be appreciated, energy customers must pay attention to the amount they’re paying each month for their energy bills.
Energy price caps are set to limit the amount you pay for each unit of energy used. That’s it. They’re not necessarily a way to save money. Here’s why—if you use more energy, even under the price cap—you’ll have to pay more money.
In addition, some energy providers may not lower the amount you’re paying via direct debit payments, even though they should to reflect a drop in energy market prices. This is one method energy companies use to keep you in debt, especially going into the winter season, when you tend to use more energy.
Energy price caps are set up to limit the amount providers are allowed to charge for each unit of electricity and gas used by customers. These regulations also set the daily maximum standing charge, which is the amount a customer has to pay to be connected to the grid.
Again, the price cap only limits what you must pay per unit; however, if you use more energy, you’ll still have to pay more. If you use less energy, you’ll have to pay less.
The Issue with Standard Tariffs
While the current energy cap looks like you’re saving money, you could actually end up paying more, unless you choose to switch energy providers. This is especially true if you’re on a standard variable tariff or a default tariff.
Standard tariff rates generally run an average of £300 + per year, which is higher than the cheapest market rates current available, when considering typical usage by average customers. This is true even after the lowering of current energy prices.
The takeaway—you, the customer, needs to make sure you’re paying the cheapest energy rates possible. Make sure not to be caught unawares with this apparent reduction in the cost of energy. Be proactive and review your current energy provider’s standard tariff or default tariff, whichever you’re currently using.
You Could Save Money by Switching Energy Suppliers
While the big six energy providers generally set their energy prices within a pound or two of the prices of the cap, resulting in an average energy savings of £76/yr, you may still find better prices by switching providers. The cheapest energy rates on the market are currently about £864/yr, offering you a savings of £310/yr, if you chose to switch suppliers.
Currently, you have the opportunity to choose from over 100 tariffs available right now, which are priced well under the newest energy cap. So, you have many options to switch and truly save money, rather than taking the price cap and possibly facing higher energy bills this winter.
You can use an energy market comparison site to see if you can change and what you might save by switching to a new energy provider. In addition, you can receive alerts for when you have the next opportunity to switch again.
Avoid being lulled by the lower energy prices set by the current price cap. Instead, do some research to see if you might benefit by switching to a new energy supplier, saving you more money in the long run.
Switching & Comparing Other Energy Suppliers:
Use a comparison website or phone different energy suppliers to see if you can save by switching, If you are happy with your current supplier, but find a better offer elsewhere, you can ask to see if they will match it. Compare your current energy use and comparre new suppliers to see if you can save upto £420 per year in some cases, Compare via our Home Energy Comparison Service.
Ofgem: How to switch to new suppliers and why you need to switch suppliers
Citzens Advice: Choosing the right energy traiff