Will the Ofgem price cap save you money on your energy bills?

Last month Ofgem, the energy regulator, put forward its plans for the new price cap on standard and default energy tariffs. It’s estimated that 11 million households will save money as a result - will yours be one of them?

energy-bills

The current proposal is for a cap at £1,136 per year for a ‘typical’ dual fuel household paying by monthly direct debit. This is the same as the current cap for vulnerable customers and those with a prepayment meter.

Why is the cap being introduced?

Capping energy costs has been on the agenda since 2013, at which point energy prices had been rising steeply for ten years. Five years later, the number of households in fuel poverty - struggling to heat and light their homes - is still rising.

In a bid to keep costs down, a price cap known as the ‘safeguard tariff’ was introduced for prepayment meters in 2017, and rolled out to a further million ‘vulnerable’ customers in February. Now, following legislation passed in July, Ofgem have the duty and powers to prevent all customers from being overcharged by the ‘big six’ energy firms - and the proposed cap should help millions of households to save on their bills.

How will it work?

When the price cap is introduced, suppliers of gas and electricity will have to lower their prices to the level of the cap or below. The annual £1,136 per year cap is based on a ‘typical’ household, but the actual cap will vary depending on where you live and how much energy you use: it doesn’t mean you’ll pay no more than £1136 no matter how much gas and electricity you get through!

At the time of writing the proposal is still under consultation, but the cap is expected to be put in place in December. It will then stay at the same level until April 2019, and will be reviewed at that point and every six months after then - when it could either go up or down. The cap is set to expire at the end of 2020, but Ofgem could recommend extending it for up to a further three years.

Will it save you money?

In total, this cap is predicted to save consumers around £1bn altogether. The 11 million households currently on standard tariffs with the ‘big six’ energy companies - British Gas, EDF, E.ON, npower, Scottish Power and SSE - could save up to £75 per year on average. And Ofgem said a typical household on the most expensive tariffs could save more than £120.

This will include ‘vulnerable’ customers who receive the Warm Home Discount, but it doesn’t apply to customers on prepayment meters, as they will still have a separate cap.

However, it’s likely that many energy companies will set their standard tariff prices to within £1 of the limit - and that you could still save a lot more by switching supplier.

Other ways to save

Right now there are more than 100 tariffs out there which are below the price cap level - so don’t wait for the price cap! Even after the cap is introduced, you could still be missing out on huge savings if you stick with your default tariff and don’t switch every year. Visit MoneySupermarket to find out how to switch. And for more tips on how to cut your energy bills, check out these tips from Which.

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