Following the tumbling of wholesale energy prices during the COVID-19 lockdown, the UK energy regulator has reduced the energy price cap. This will lead to lower energy bills for 15m homes.
The default dual-fuel energy tariff will fall by £84 for 11m households, with the average annual bill expected to be around £1042 this October. Those using pre-payment energy meters will see savings of £94 on average, as their bills fall to £1070 a year.
Ofgem’s energy price cap will drop to the lowest level since its introduction back in January of last year. The lockdown as a result of the COVID-19 pandemic has led to a sharp fall in demand for energy, which has caused market prices in the sector to slide to historic lows.
Government ministers introduced the cap as there were fears that the low numbers of people switching energy suppliers could potentially lead to higher energy bills.
The energy watchdog reviews the price caps on bills every six months to ensure that bills are fair in relation to energy company costs. As prices have fallen sharply for the wholesale market, these savings can be passed on to consumers.
Despite increased demand from households as people stayed at home, demand from offices, factories, restaurants, and schools all ground to a halt during the lockdown.
Chief executive of Ofgem, Jonathan Brearley, said: “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.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market."
The energy minister, Kwasi Kwarteng, said that the government was “working hard to ensure consumers pay a fair price for their energy”. Earlier this year, the government urged energy providers to lend support to their customers who were most at risk.
Director at the Energy Ombudsman, Ed Dodman, described the price cap as being a “much-needed financial boost for millions of households, at a time when many people are struggling due to the economic impact of Covid-19 and lockdown”.
However, many consumers may find that they could save much more money by switching to a new cut-price fixed-term deal. Cornwall Insight’s Robert Buckley said: “Today’s announcement should be used as a catalyst for customers to check their tariff to see if they are on the best possible deal.
"This is especially important as next time the price cap is reset for April 2021, we could well see rises offsetting as much as half of the falls announced today."
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