With Ofgem announcing yesterday (25 May) that the energy price cap would fall to £2,074, as reported by Current±, industry has reacted positively to the news.
Despite this, many have highlighted that although the price cap witnessed its first fall in 18 months, prices are still well above the average set prior to the energy crisis and thus more support must be provided for those that may struggle to pay energy bills.
Ofgem confirmed that the price cap level is to see a reduction of £1,206 from April’s price cap which the regulator set at £3,280. This is a significant decrease in comparison to the first three months of 2023 when Ofgem set the Default Tariff Price Cap at £4,279 – its peak since the energy crisis started.
Current± has highlighted some of the key takeaways from around the industry in relation to the announcement made by the energy regulator.
The Department for Energy Security and Net Zero
Energy Security Secretary Grant Shapps highlighted how the fall in the price cap is not only a positive for the energy sector and consumers, but is also positive for the government’s efforts to reduce inflation.
“It’s positive households across the country will see their energy bills fall by around £430 on average from July, marking a major milestone in our determined efforts to halve inflation,” Shapps said.
“We’ve spent billions to protect families when prices rose over the winter covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two thirds since their peak as we’ve neutralised Putin’s blackmail.
“I’m relentlessly focused on reducing our reliance on foreign fossil fuels and powering-up Britain from Britain to deliver cheaper, cleaner and more secure energy.”
Cornwall Insight also stated that the fall in the price cap is good for the nation however there needs to be action to support households that will continue to struggle with paying energy bills.
“Ofgem’s announcement that July’s Default Tariff Cap (price cap) will fall to an average £2,074 p/a, will undoubtedly bring some relief to those struggling with relentlessly high energy bills,” said Dr Craig Lowrey, principal consultant at Cornwall Insight.
“Nevertheless, it is essential to keep this reduction in perspective. The cap is still nearly double the pre-pandemic average, and with our current forecasts showing no significant decreases on the horizon, we must confront the reality that the cap, while offering some limited protection, doesn’t do enough to shield many vulnerable consumers from the burden of unaffordable energy costs.”
Cornwall Insight predicted the price cap to fall to £2,053 for the summer. However, the organisation warned it does not expect energy prices to return to pre-2020 levels before the end of the decade at the earliest. Lowery also was keen to express this in a statement on the price cap.
“Looking beyond July, Ofgem is consulting on changes to the modelling and policy around the cap and the government is also looking at new measures which will impact household energy bills. While such moves could lead to lower prices beyond current predictions, there is no expectation that any of these changes will see a return to historic norms,” he said.
“Unfortunately, affordable energy bills can no longer be taken for granted by the government, as the underlying issues within the energy market will not simply resolve on their own. If policymakers truly want to regain control over bills, they must prioritise addressing the numerous long-term energy challenges confronting the UK.
“This means continuing to work towards fostering a competitive and sustainable energy market that promotes energy security, renewable generation, fair pricing, and consumer empowerment. Only by accepting that the cap is not the answer to lower prices, can we start to pave the way for a more resilient, affordable, and sustainable energy future.”
“It’s obviously great news that energy prices are now falling but, even with the reduction in the price cap level, customers will still be spending almost double what they were paying before prices started spiralling 18 months ago,” said Simon Oscroft, Co-Founder of So Energy.
“Compounding this, even though the price cap is coming down by £426 a year, this is £36 a month which is less than the £66 a month Energy Bill Support Scheme which ended in March. This means that – without further Government intervention – customers will be worse off this winter than they were last winter.
“We therefore need targeted support for the most vulnerable this winter but delivered in a way that minimises costs for the taxpayer. Otherwise, the Government risks sleepwalking into delivering blunt and costly universal support packages that they had to resort to last winter because they didn’t have time to develop a more focused package. We are ready to work with Government on a solution, but they need to set the wheels in motion urgently.”
Energy and Climate Intelligence Unit (ECIU)
Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU), said: “Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade – that’s around £600 (about 50%) above where it was before the gas crisis.
“If we don’t get on with insulating homes, installing heat pumps and building more renewables, gas demand will remain high and that means bills will too.”
National Energy Action
“Coming out of winter, most people will welcome any respite from record high prices, but it still leaves prices more than 80% higher than the start of the energy crisis and two million more households trapped in fuel poverty,” said National Energy Action’s chief executive Adam Scorer.
“More than two and half million low income and vulnerable households are no longer receiving any government support for unaffordable bills. For them, the energy crisis is far from over.”
“The first price cap drop in two years is confirmation that the tide is finally turning for long-suffering energy customers. The average household can expect monthly direct debits to be set at £173, although typical seasonal usage may only see you spend £110 a month over the summer,” said Natalie Mathie, energy expert at Uswitch.com.
“While this is good news, the majority of homes are on standard variable tariffs and now subject to the volatility of price cap changes every three months. This is a watershed moment for energy suppliers who can now look to start offering fixed deals again, given the market conditions – and would help to encourage genuine competition in the retail energy market.
“Customers should have the choice of whether to lock in the benefits of lower wholesale prices for 12 months, just as they do in the mortgage market. If deals are priced fairly, this could offer much needed peace of mind, particularly over the high usage winter period.
“We see no reason why energy suppliers cannot offer competitive fixed deals around the £2,000 level. After a long spell of having no option but to try to reduce their usage at home, now is the time for energy customers to start paying attention to the market again.”