Rhiannon Philps
Energy prices have risen astronomically since 2021, leaving some of us struggling to pay our bills. To ease some of the impacts of these price rises, the government introduced an Energy Price Guarantee (EPG) from 1 October 2022, which will remain in place until 31 March 2024.
In the Spring Budget on 15 March 2023, it was announced that the level of the EPG would remain capped at an annual rate of £2,500 for a typical household until 30 June 2023. It was previously due to rise to £3,000 from 1 April, but this will now take place from 1 July.
The good news is it’s unlikely this increase will hit your bills because Ofgem’s energy price cap is forecast to drop below this level, and households pay the lower between these two rates.
But what is happening with energy prices right now? And when will they start to fall?
Why are energy prices so high?
Our energy bills have been so high because wholesale gas prices – the amount that energy suppliers pay for gas – 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 their energy bills. 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.
What is the energy price cap?
The energy price cap is the maximum that suppliers can charge households per unit of gas and electricity. It only applies to variable and prepayment tariffs, not fixed-rate tariffs.
The 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.
This cap only applies to England, Wales and Scotland. In Northern Ireland, the energy market works differently and there is no equivalent price cap.
Since October 2022, the government’s Energy Price Guarantee has replaced the price cap in limiting the cost of the energy you use. Until 30 June 2023, the EPG will limit the amount that a typical household in Great Britain pays for its energy to around £2,500 a year.
If the EPG wasn’t in place, our bills would be determined by the price cap, which is set at a level of £3,280 from 1 April for a typical household.
Bear in mind that these figures are not the maximum you can pay for your electricity. They are a guide based on a typical household’s usage, so if you use more energy, you will pay more. The price cap and the EPG limit the cost of a unit of gas or electricity, not your actual bill.
Customers on variable and prepayment tariffs will automatically benefit from the EPG cap. If you are on a fixed tariff that is set above the Guarantee, the supplier will apply a discount.
Households in Northern Ireland are receiving equivalent support from a similar scheme to the EPG.
Are energy prices still rising?
Wholesale energy prices are no longer rising and, as a result, Ofgem’s price cap is starting to drop.
However, we are not yet seeing our energy bills go down as the amount we pay for energy continues to be capped by the Energy Price Guarantee, which is set at a lower level than the price cap.
Before the Spring Budget on 15 March 2023, we were expecting energy costs to rise. This is because the Energy Price Guarantee was due to rise from a rate of £2,500 per year for a typical household to £3,000 from 1 April.
But, in the Budget, it was confirmed that the average annual household bill will stay at around £2,500 until 30 June 2023.
However, the £400 energy bill discount ended on 31 March 2023, which had been cutting £67 off monthly bills since October 2022.
The EPG will rise to £3,000 from 1 July, but, at this point, the price cap is expected to be lower than this sum. Once the price cap falls below the level of the EPG, the price cap will determine the maximum we pay for our gas and electricity.
Northern Ireland
Northern Ireland has provided households with discounts on the cost of their gas and electricity, equivalent to the support received elsewhere in the UK. But from April 2023 until June 2023, this discount will be smaller, which means many households in Northern Ireland are likely to see an increase in their bills.
The discount that households receive will drop from 13.6p/kWh to 3.8p/kWh for electricity and from 3.9p/kWh to 2.6p/kWh for gas. As a result, it’s estimated that a typical household will see their bill rise from an annual rate of £1,952 to £2,109.
When will energy prices go down?
As wholesale energy prices are falling, Cornwall Insight, the independent energy analyst,predicts that the price cap will fall to around £2,000 from 1 July. This is lower than the current EPG limit of £2,500.
This means that, if you’re on a variable tariff, your energy bills should decrease from 1 July as the amount you pay will be limited by the price cap rather than the EPG.
Ofgem will announce the new price cap on 26 May 2023.
What if I’m locked into a fixed-rate tariff?
If you’re locked into a fixed deal that’s more expensive than the EPG, your energy bills may actually rise from July.
Under the EPG, customers on fixed tariffs could get a discount so they didn’t pay more than the EPG limit.
But if the price cap falls below the EPG from July, as predicted, you would no longer get this discount and wouldn’t benefit from the lower price cap. You would instead have to pay the usual rates on your tariff, which could be more expensive than the amount you were paying under the EPG.
This means you could be stuck paying more for your energy than necessary.
In this situation, it may be worth spending some time researching your options and seeing if you could switch to a cheaper variable tariff or a cheaper fixed deal.
If you do decide to leave your current fix, check if you need to pay any penalty fees.
What if I’m on a prepayment tariff?
The Ofgem price cap for prepayment tariffs is typically higher than if you pay by direct debit. But, as announced in the Spring Budget, the Energy Price Guarantee will ensure that prepayment customers don’t pay more than direct debit customers from 1 July 2023 until 31 March 2024.
Even if the Ofgem energy price cap drops below the rate of the EPG, which it is forecast to do later in the summer, a prepayment customer should still pay the same for their energy as an equivalent direct debit customer.
The government has confirmed it will continue to level the difference between prepayment and direct debit costs until 31 March 2024, even if bills fall below the level of the EPG and Ofgem’s price cap applies.
Ofgem says it is planning to publish a call for input on the subject of prepayment costs in the near future.
Should I fix?
It is early to say whether it’s better to stay on a variable tariff or to fix. Some suppliers are starting to offer fixed-rate tariffs, but until Ofgem officially announces what the price cap will be from 1 July, it’s hard to say if they are worth taking.
If you prefer to know exactly what you will pay for your energy each month, then it’s worth considering a fixed deal. 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.
» MORE: Types of energy tariffs explained
What if I can’t afford my energy bills?
With the overall cost of living on the rise, 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, 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:
- 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.
People receiving certain benefits may also be eligible for one or more cost of living payments.
» 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
About the Author
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