Understanding the Impact: Changes to the Energy Price Cap and Your Household Bills:

The recent adjustments to the Energy Price Cap, overseen by energy regulator Ofgem, have implications for consumers. The cap, which sets the maximum charge for energy usage, is revised every quarter to align with fluctuations in energy costs and inflation.

Earlier in 2023, falling wholesale energy prices led to a reduced cap from October to December, limiting the average annual bill for a typical household to £1,834.

In response to a recent surge in wholesale gas prices, Ofgem announced a 5% increase to the cap for January to March 2024.

This adjustment is anticipated to raise the average household bill by approximately £94 annually, restoring the cap to levels observed from July to September 2023. Although the increase coincides with colder months, it's noteworthy that the upcoming cap remains lower than that of January to March 2023 when the government's Energy Price Guarantee prevented bills from exceeding £2,500.

As the government's Energy Bills Support Scheme, providing a £400 discount on energy bills has concluded, consumers are urged to consider these changes when assessing their bills compared to the previous year. While the Warm Home Discount Scheme and other government-funded initiatives in England, Scotland, and Wales offer assistance to eligible customers, consumers on fixed tariffs remain unaffected by the Energy Price Cap adjustments.

For those on default or standard variable tariffs, including direct debit, standard credit, prepayment, or Economy 7 (E7) meter users, the Energy Price Cap applies. Notably, the Energy Price Guarantee now aligns pre-payment meter costs more closely with direct debit users. If paying by direct debit, consumers are advised to verify their payments based on actual usage by providing meter readings to ensure accurate billing.

What will be the effect of the price cap adjustment on my energy expenses? You can examine the average cost per unit of energy consumed listed below and contrast it with your home energy bills to estimate your household's energy consumption.

Ofgem defines a standard or 'medium-use household' as a residence with two to three bedrooms and 2 or 3 occupants.

If you reside in a flat or a one-bedroom house, your energy consumption is presumed to be 'low.' Conversely, if you live in a four-bedroom house with 4-5 occupants, your energy consumption is assumed to be 'high.' Refer below for details.

The total you pay is also influenced by the energy efficiency of your residence and the appliances you utilise, as well as their frequency of use. Energy consumption is measured in kilowatt-hours (kWh) or units. For instance, one kWh can power a 100-watt lightbulb for 10 hours, whereas it requires 4.5 kWh to run a single cycle of a tumble dryer.

As for the standing charge on your bill, it remains a fixed fee for maintaining a connection, irrespective of your energy usage. This charge covers tasks like network maintenance, meter readings, and support for government and environmental initiatives.

The specific amount is contingent on your supplier, tariff, and location. On average, the daily standing charge for electricity is 53p, and for gas, it's 30p. This equates to slightly over £300 annually on average.

Written by Veera Josey, 29th January 2024

Source: Ofgem