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Energy price cap: will it save you money?

11 million homes get a ‘fairer deal for their energy’

Energy price cap: will it save you money?

Households on the most expensive energy tariffs could save around £120 per year when a new price cap comes into force this winter. But the cap doesn’t mean you’re protected from overpaying on gas and electricity. Switching supplier will save you more, Which? research reveals.

In total, 11 million households will be affected by the price cap which energy regulator Ofgem plans to have in place by the end of the year.

The cap is expected to save you around £75 per year on average on your energy bill, if you’re on a default standard variable tariff. If you’re on one of the most expensive tariffs, you could save up to £120 per year.

But if you switched to the cheapest deal on the market, from the priciest standard variable tariff, you could save £398 per year.

Several of the biggest energy companies will have to cut the prices of their standard variable tariffs in order to meet the cap. Keep reading to find out how much you might save – and how to shave even more from your gas and electricity bills.

The energy price cap doesn’t mean you should stop thinking about your bills. You’ll still be able to save money on gas and electricity, likely hundreds of pounds a year. Compare gas and electricity prices using Which? Switch.

Why you should still switch energy supplier

The price cap will have ‘headroom’ built in. This means that Ofgem factors in some space for companies to compete on price. So there will still be gas and electricity tariffs that will save you money – and others where you’ll be overpaying.

The cheapest dual-fuel energy tariff costs £859 per year for a medium user, at present. Switch to this from a tariff at the level of the cap, and you’ll save £277 per year. But energy tariff prices change frequently, so we’ll have to wait and see what deals are available when the cap comes into force.

See the top five cheapest gas and electricity deals for September.

How the price cap will affect your energy bills

The maximum amount energy companies will be able to charge dual-fuel customers paying by direct debit is £1,136 per year. That’s based on a medium user; so you could pay more or less depending on how much gas and electricity you use.

The cap will apply to your bills if you’re on a default standard variable tariff. This is the one you’ll likely be on if you haven’t switched supplier or tariff recently – effectively it’s an ‘out of contract’ tariff.

If your supplier charges above the cap level, it will have to cut its bills. Of the biggest suppliers, just Ovo Energy’s rates are already below the cap.

In total, Ofgem says that the cap will save energy customers £1 billion.

The level of the cap is slightly higher if you pay for your gas and electricity when you receive a bill (rather than automatically by direct debit). But you could still save at least £34 in a year once the cap is in place.

But if you’re on a fixed energy tariff, the cap won’t affect you. Ofgem says it will confirm the final cap level in November.

When will the energy price cap end?

The level of the cap will be updated in April and October every year. Ofgem will re-assess the level and can change it to reflect the latest costs of supplying electricity and gas.

The cap already in place for those with prepayment energy meters, or in receipt of the Warm Home Discount, also works in this way. It has been raised twice, and lowered once, since it was introduced in April 2017.

This cap on default standard variable tariffs is expected to be in place until 2023. Ofgem says this will give it time to put in place other reforms to make the energy market more competitive and work better for all consumers.

Which? comment on the energy price cap

Dermot Nolan chief executive of Ofgem said it’s ‘a tough price cap which will give a fairer deal to consumers on poor value default tariffs’.

Alex Neill Which? managing director of home products and services, said: ‘While this cap may bring a price cut for some, people shouldn’t think it will mean they’re automatically getting the cheapest deal on the market. There are still better deals on the market and energy companies must not use the cap as an excuse to delay helping the millions of customers stuck on rip-off standard variable tariffs to move.

‘The price cap can only be a temporary fix and the government, regulators and the big providers should now press ahead with reforms to create real competition, promote innovation and improve customer service.’

Which? has long campaigned for fairer energy prices, with more than half a million people baking our campaign for fair energy prices.

How to save more money on energy

Ofgem claims the price cap will save customers on standard variable tariffs up to £120 per year.

But you could save as much without the price cap. Besides switching to a cheaper gas and electricity tariff, try making a few changes to the way you use energy:

  • Replace your old light bulbs with LEDs – it could save you £180 on energy bills over their lifetime.
  • Turn down your thermostat – reducing room temperatures by 1°C can cut heating bills by up to £75 per year, according to the Energy Saving Trust.
  • Turn down radiators in rooms you rarely use and remember to turn down your heating when you’re out or in bed – a smart thermostat could help you here.
  • Stop draughts around window frames, under doors and up the chimney to save £35 per year. See our guide to draught-proofing.
  • Dry washing outside, rather than in the tumble dryer, while the weather allows.
  • Turn off appliances you’re not using, rather than leaving them on standby. Smart TVs use electricity as long as they’re connected to the internet.

Which? energy pricing analysis

Prices are based on a dual-fuel tariff available in all regions in England, Scotland and Wales paying by monthly direct debit, with paperless bills. Energy usage is based on Ofgem’s annual average usage figures for medium users (12,000kWh gas and 3,100kWh electricity). Data is from Energylinx. Prices given are averages across regions, are rounded to the nearest whole pound and correct on 6 September 2018.

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