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Changes to price cap in 2020

Posted by Anna Carlini on 4 March 2020 at 4:29 pm

The energy price cap, protecting customers from rising energy costs, is lowering, it has recently been announced. The changes will mean an average of £17 saving per household, with average dual-fuel bills going down from £1,179 to £1,162 over a year. The cap will affect those on prepayment meters, receiving the Warm Homes Discount or are on a default standard variable tariff.

The price cap was originally brought in at the beginning of 2019 to protect the most vulnerable customers from climbing energy prices. The cap puts a restriction on the amount suppliers can charge for each unit of energy used, as well as setting a limit on the daily standing charge. This new lower cap will come into effect on 1st April and will remain in place for 6 months when will be reviewed and adjusted by October.

EDF has already lowered their bills in line with the new cap, cutting their bills to £1,161 per year, only £1 below the price cap. This demonstrates one of the criticisms of the cap, which argues that it causes a ‘bunching’ of energy prices just below the cap and reduces the opportunity for competition. The cap has not yet come into effect and this trend is already beginning to fall into place. 

Why has the cap been lowered?

Ultimately, Ofgem says that falling prices of wholesale gas should in turn benefit the customer. These falling costs are due to a high amount of gas in the European market. A record-number of seabound cargoes from the US, Russia and Qatar have flooded the UK market, with imports of liquified natural gas (LNG). This has led to the lowest prices seen in a decade, as the market price for gas fell by half in 2019.

By the end of last year, Octopus Energy had already lowered their prices to reflect this drop in wholesale cost, saying they were passing on the benefit to their customers. And now the lowering of the cap reflects this too. Experts say prices will continue to fall as there remains to be a surplus in Europe’s gas storage levels. Trends demonstrate that the US is continuing to increase their supply to Europe, whilst simultaneously Russia is not letting up their supply either. Although those worried about the impacts of gas on the environment are concerned by these figures, it is hoped the situation will lead to further reductions in energy prices.

However, suppliers argue that increasing operating costs, network charges and now a lowering price cap are ceating a very hostile environment for energy suppliers.

What does it mean for you?

This new cap will affect 11 million households in the UK, which is roughly 40% of the population. The crucial thing to remember is that you will still pay for the amount of energy used, and if you are on a fixed tariff this cap will not affect you. Most importantly, switching at the end of a tariff is still the best way to save money on your gas and electricity bills.

Sources

https://www.theguardian.com/business/2019/dec/26/energy-bills-for-millions-of-households-to-fall-after-gas-prices-halve

https://www.moneysavingexpert.com/news/2020/02/first-of-the-big-six-cuts-energy-prices-after-price-cap-drop---b/

https://flipper.community/posts/energy-price-cap-ofgem-energy-price-cap-explained

 

If you have a question about anything in the above blog, please ask it in the comments section below.

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