Energy consumers in Great Britain are set to experience a modest reduction in their energy bills this summer as the regulator, Ofgem, lowers the energy price cap to £2,074 annually. Despite the reduction, average households will still be paying nearly twice as much for their gas and electricity as they did before costs surged.

From July

The new cap will come into effect in July, bringing the average gas and electricity bill down from the £2,500 annual level set by the government's energy price guarantee. However, the relief may be slight for those who struggled with their bills over the winter, as government top-ups worth £400, which were provided from October to March, have ceased.

Under the new cap, household energy bills will remain almost double the amount seen in October 2021, when Russia began restricting gas supplies to Europe, causing wholesale prices to skyrocket. Before the energy crisis, the average household's annual bill for gas and electricity was £1,271. It's important to note that households could still face dual-fuel bills exceeding £2,074 if they use more energy than the average consumption level, since Ofgem's cap limits the rate energy suppliers can charge customers per unit of gas and electricity, not the total bill.

Extra Charges

In a controversial move, Ofgem has also proposed a plan that would charge households an extra £10 annually on their energy bills from October to help bolster the profits of energy providers.

The regulator argues that increasing the profit suppliers can make from 1.9% to 2.4% will prevent them from going bankrupt, as the cost of bailing out a failed supplier would be higher. This plan would increase annual supplier profits from £37 per household to £47.

Extra Profit for British Gas

This proposal led to a significant share price increase for the owner of British Gas, Centrica, with shares climbing by about 2% as analysts estimated the move could yield the company an additional £56m a year.

Gillian Cooper, the head of energy policy at Citizens Advice, expressed skepticism about the proposed profit increases, saying

“Supplier profit margins in the retail price cap have already increased in line with energy bills, and we are not convinced further increases are justified. We need to keep the focus on providing more support to people this winter”.

How are businesses Effected by the cap

The cap does not extend to businesses, charities, or public sector organisations such as schools, hospitals, and care homes. A government scheme initiated in April offers eligible businesses a discount on the wholesale price of energy, providing up to £5.5bn of support over a year

significantly less than the estimated £18bn over six months allocated under the previous aid package.

What Ofgem Thinks

Jonathan Brearley, the chief executive of Ofgem, acknowledged the challenges faced by consumers over the winter, stating that it was encouraging to see prices moving in the right direction.

However, he also admitted that many people are still finding it hard as the cost of living crisis continues, and these bills will still trouble many individuals across the country.

He advised those struggling to contact their supplier for assistance, such as payment plans or access to hardship funds, and expressed that households were unlikely to see prices return to pre-crisis levels in the medium term.

Brearley also called on the government to work with Ofgem, consumer groups, and the wider industry to support vulnerable groups.

Facts sourced from:
The Guardian