While many of us will have taken measures to keep energy bills low, we have finally seen energy prices go down for the first time in almost two years.
The new energy price cap, which came into effect on 1 July, takes the typical average annual household bill to £2,074. Previously, the average bill was at around £2,500 under the Energy Price Guarantee, which was put in place by the government to help keep a lid on high costs. But now, the price cap for the 1 July to 30 September 2023 period has fallen, pushing bills down by around £426 a year (17%).
The big question is whether energy prices will fall further or could we see an increase in energy costs again as we await the next price cap announcement next month?
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The new energy price cap - how much will you pay?
The latest energy price cap means that for households on a variable tariff, their costs fell on 1 July, taking the average annual bill to £2,074 - down from £2,500. It is important to note that your actual bill is determined by how much you use, as the cap is actually a cap on the unit price not your total bill.
These are the unit rates:
- 30p per kWh (previously 33.2p kWh) for electricity
- Standing charge: 53p per day for electricity
- 8p per kWh (previously 10.3p kWh) for gas
- Standing charge: 29p per day for gas
The current energy price cap runs from 1 July to 30 September 2023. The cap is then revised every three months, so a new rate will kick in from October.
The next energy price cap announcement is due on 25 August.
The energy price cap is the maximum price per kilowatt hour (kWH) that energy suppliers can charge for energy if you are on a standard or default tariff. It is set four times a year, and is based on movements in the wholesale markets.
Will energy prices fall again in winter?
Ofgem previously noted that while the current price cap represents a drop from previous caps ‒ and from the EPG ‒ it is nonetheless above the levels households would have been used to paying before the crisis took hold - and there is still a risk prices could rise according to experts.
British Gas owner Centrica has warned that energy bills are set to remain high for the foreseeable future but the worst of the recent energy crisis has passed.
Chris O’Shea, chief executive of energy giant Centrica, said prices will drop but remain significantly above the longer-term average.
“I think the first act of the crisis is over,” he told BBC Radio 4’s Today programme.
“I think what we’ve got to remember is that energy prices had more than doubled before Russia invaded Ukraine.
“Prices are back down to pre-invasion levels but they are 2.5 times the long-run average, and that’s really driven by supply and demand.”
“I think there is a danger that we get complacent because last winter was OK and because prices are stable now.”
However, according to the International Energy Agency, there is a risk energy prices could spike this winter, forcing governments to step in again with similar measures as the EPG. This could happen if the Chinese economy strengthens quickly and we see a harsh winter, which would push gas prices up again.
What will happen next with energy prices?
The energy analyst Cornwall Insight predicts that the price cap for October to December will be set at £1,861 ‒ more than £200 below the current level ‒ before being increased to £1,959 for the first quarter of 2024.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “The news of a relative stabilising of energy bills will no doubt leave households with mixed feelings. After the surge in bills seen last winter, it may bring a sense of relief to people that energy prices are currently not forecast to surge unexpectedly.
“However, there will also be disappointment with prices still well above the levels seen a few years ago – leaving many longing for more affordable options. The wholesale market remains the main driver of bills, and unfortunately there is no immediate prospect of prices there returning to historic averages.”
Keep energy bills low
To help you keep energy bills low, we have gathered some top tips in our article looking at 13 ways to reduce your energy costs. And if you're interested in the best ways to improve your energy efficiency and reduce costs, we explored radiators vs electric heaters, heated airers vs tumble dryers, and wood burning stove vs central heating.
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