Ofgem announces new energy price cap will reduce bills by £84

The energy price cap will be reduced to £1,042 in October

energy bills
(Image credit: Getty)

Ofgem has announced the latest energy price cap. From October 1 2020, energy prices will be capped at £1,042 instead of £1,126. That’s an extra saving of £84. 

However, if you’re actually paying that much for your energy, you should switch energy supplier - in doing so you could save hundreds of pounds every year.

Ofgem reviews the energy price cap twice a year. The industry regulator was able to lower it further this summer because wholesale energy prices have fallen recently, following the global pandemic. 

“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,” said Jonathan Brearley, chief executive of Ofgem. “They can also reduce their energy bills further by shopping around for a better deal.”

What is the Ofgem price cap?

It’s important to understand that the energy price cap doesn’t mean that £1,042 is the most you’ll ever pay for your bills come October. Ofgem’s price cap limits how much energy suppliers can charge for units of energy. 

The price is quoted as what the average household would pay, using the annual energy consumption of 12,000kWh of gas and 2,900kWh of electricity to work out the cost. So, if you use twice as much energy as the average home, your bills will still be double the price, for example. 

What does the Ofgem price cap mean for me?

If you use a prepayment meter or you’re on a standard variable tariff, this should ultimately mean lower energy bills if you’re paying more than you should be. It’s designed to help people on what Ofgem labels poor value deals - standard variable tariffs where the price of energy can go up or down, and where costs are much higher than they need to be.

If you’re on a fixed-rate tariff, this won’t apply. That’s because they come under the price cap anyway, and offer good value.

Will the price cap save me money?

Even with the welcome reduction in the energy price cap, it still leaves homes open to over-paying by hundreds of pounds. For example, the average home in the east of England would actually save £388.70 if they switched to the best energy deal available in August. And the average home in North Scotland would save £286.04 a year by switching to the cheapest fixed deal that’s available in August. 

Do I need to do anything?

If you’re impacted by the price cap, the reduction will automatically be applied by your supplier from October 1 2020. Your provider will also write to you to inform you if the tariff has been changed in a way that could disadvantage you, or if it means the tariff you’re on is no longer available.

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You’ll save significantly more money on your bills if you run an energy price comparison and switch supplier. It takes just a few minutes, and you’ll be able to see your estimated savings and choose the best deal for you. Start saving now