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Published 27 February 2024
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Are Energy Prices Going Down? Should I Fix?

While the energy price cap rose at the beginning of January 2024, Ofgem has announced that it will fall again from April. Find out what this means for our gas and electricity bills.

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The Ofgem price cap fell throughout 2023, but in January 2024 the cap increased from £1,834 to £1,928 a year for a typical household that pays by direct debit, bucking the downward trend. The price cap is set at this level until 31 March 2024.

Ofgem has announced that the price cap will fall again from 1 April 2024, to £1,690. This is the lowest cap since the start of the Ukraine war in early 2022, but it’s still much higher than the levels seen before Russia’s invasion.

It’s worth noting that Ofgem has revised the typical electricity usage from 2,900 kWh to 2,700 kWh, and the typical gas usage from 12,000 kWh to 11,500 kWh. 

One reason for this change in values could be that households have become more energy efficient. But it also reflects that households may have been rationing energy usage over the last year, in an attempt to combat rising prices.

Importantly, the price cap isn’t a total limit on your bill, and instead it limits the unit cost of energy. The more you use, the higher your bills will be.

So what does the price cap mean for our energy bills? And is now the right time to fix?

Why are energy prices so high?

Our energy bills have been high because wholesale gas prices – the amount that energy suppliers pay for gas – have skyrocketed.

The coronavirus lockdowns, cold winters, and geopolitical issues, such as Russia’s invasion of Ukraine in early 2022, are just some of the factors that have driven up the cost of energy.

Because wholesale gas prices increased so much, suppliers had to pay more for energy.

Suppliers pass on these higher costs to households by increasing how much they pay for the energy they use. However, there was a limit to how much they could pass on to customers because of the Ofgem energy price cap and, more recently, the Energy Price Guarantee.

While wholesale energy prices largely went down throughout 2023, they were still high compared with previous years. And Ofgem increased the price cap in January 2024, because the cost of wholesale gas went up again due to world events, such as the conflict in the Middle East.

When does the energy price cap change?

The energy price cap is set by Ofgem and aims to make sure that customers are charged a fair price for their energy. It is now reviewed every three months (it used to be every six months) and any changes come into force in January, April, July and October.

The cap is the maximum that suppliers can charge households for each unit of gas and electricity they use. It only applies to variable and prepayment tariffs, not fixed-rate tariffs.

From 1 January to 31 March, the price cap is £1,928 for a typical dual-fuel household paying by direct debit. The actual figure can vary depending on how much energy you use, where you live and how you pay for your energy.

From 1 April to 30 June, the price cap for a typical household paying by direct debit will be £1,690. 

This cap only applies to England, Wales and Scotland. In Northern Ireland, the energy market works differently and there is no equivalent price cap.

Bear in mind that the price cap is not the maximum you can pay for your energy and instead it limits the cost of a unit of gas or electricity, not your actual bill. 

Are energy prices going down?

Cornwall Insight, the independent energy analyst, believes prices could fall further in 2024. It predicts that the price cap could sit around £1,463 in July 2024, before rising again to around £1,521 in October 2024. 

Ofgem can reduce the price cap when wholesale energy prices fall – the drop in the price cap from April 2024 reflects lower wholesale energy prices paid by suppliers.

What if I’m on a prepayment tariff?

The Ofgem price cap for prepayment tariffs is currently £1,960 until 31 March 2024, but the Energy Price Guarantee will continue to ensure that prepayment customers don’t pay more than direct debit customers. This discount saves typical prepayment customers around £40.

The discount is delivered by a reduction in standing charges.

With the Energy Price Guarantee due to end on 31 March, Ofgem has announced that prepayment customers who get their gas and electricity from the same supplier will continue to pay less than direct debit customers. Again, this will be delivered by a reduction in standing charges. Prepayment customers will save around £49 a year, while direct debit customers will pay £10 more a year.

With the above change factored in, the prepayment price cap will be £1,643 from April to June 2024.

Should I fix my energy deal?

With the price cap falling throughout 2023, more suppliers have started offering fixed-rate tariffs for both new and existing customers. Some tariffs may even be cheaper than the current level of the price cap.

But fixing comes with caveats. For example, not every tariff will be available to new customers, meaning you may have to be with the supplier already to fix your prices.

Fixing could also come with additional fees or requirements, such as the need to take out an additional service with the provider, or to manage your account online.

Ultimately, you aren’t likely to be able to save huge sums, so whether you fix or not will usually come down to personal preference – for example, if you want to have certainty over your payments each month.

If you think that fixing might suit you, it’s a good idea to look into the options available to see if any are worth considering. Make sure you check the terms of the tariff and any exit fees that may apply.

As a rough rule of thumb, if you’re offered a tariff at a similar level to the April price cap, then it may be worth considering if you prefer to know exactly what you will pay for your energy each month.

But you need to bear in mind that, if energy prices fall further, you may be locked into paying more for your energy than if you had stayed on a variable tariff or waited for a more competitive fixed-rate tariff. And while the cap will go down in April, remember that it is predicted to fall again in July. With fixed tariffs typically lasting 12 months, you need to consider how prices might move over the entire year – and with the wholesale energy market remaining volatile, there is no easy answer.

If you’re already locked into a fixed deal that’s more expensive than the price cap, it may be worth seeing if you can switch to a cheaper variable tariff or a cheaper fixed deal. But, if you do decide to leave your current fix, check if you need to pay any penalty fees.

» MORE: Types of energy tariffs explained

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What if I can’t afford my energy bills?

With the overall cost of living still high, the finances of many families are being stretched to their limits.

While cutting down on your energy use could help you to save some money on your bills, it is likely to be a small drop in the ocean compared to the amount that we are currently paying for our energy.

If you’re finding it difficult to pay your energy bills, and are having to decide between food and heating for example, then you should ask for help as soon as possible.

You can contact your energy supplier to say you are struggling to afford your bills, and you may be able to arrange a new payment plan. If you can’t come to an agreement and you pay for your energy by direct debit, your supplier may want to switch you to a prepayment tariff. 

Some energy suppliers offer grants and hardship funds, as well as advice, so it’s worth seeing if you are eligible for any support from your provider.

Also, make sure you check if you are eligible for any of the following government schemes, available during the winter:

  • Warm Home Discount
  • Winter Fuel Payment
  • Cold Weather Payment

There may be some local grants available too, so check with your local council to see if it can offer any support.

» MORE: Help if you can’t afford your energy bills

If you are struggling with your finances and debts, you can also contact charities for help and advice, such as:

» MORE: How debt charities can help

Image source: Getty Images

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