Energy bills are poised to decrease for millions of households this spring following Ofgem’s announcement of a new price cap. The price cap is set to drop from £1,758 to £1,641 for the average household starting April 1, marking a 7% reduction of £117. However, the actual amount saved will vary based on individual gas and electricity usage.
Every £100 currently spent on energy will see a reduction of around £7 from April onwards. This decrease is attributed to measures introduced by the Government in the previous autumn Budget. Chancellor Rachel Reeves disclosed that a £150 reduction in energy bills will be implemented from April by eliminating the Energy Company Obligation and Renewables Obligation.
Despite the reduction, some of the savings are counterbalanced by additional costs added to bills, such as network maintenance expenses and slight increases in wholesale prices. Ofgem revises its price cap every quarter, with the new rates set to remain effective until June 30 before the next adjustment.
Households are advised that switching to a fixed tariff deal can lead to further savings. Richard Neudegg, director of regulation at Uswitch.com, emphasized the potential for bills to be up to 19% cheaper with fixed tariffs compared to the current standard rates. Taking action is recommended as there are currently 30 fixed energy deals in the market that undercut the price cap, offering savings of up to £260 for an average household.
Tim Jarvis, Director General, Markets at Ofgem, highlighted that today’s reduction is primarily driven by the changes in policy costs as announced in the budget. Ofgem’s focus remains on controlling costs within its purview and facilitating investments for a more stable energy system in the long run. Increased engagement and competition are evident, with a nearly 20% year-on-year rise in switching.
The Ofgem price cap sets the maximum unit rates and standing charges rather than capping the total energy bill. Factors such as location, payment methods, and customer type influence the final bill amount. Wholesale energy costs, network upkeep, operating expenses, and other elements are considered in determining the price cap.
Looking ahead, Cornwall Insight predicts a relatively stable price cap throughout 2026, with a potential slight increase in energy bills in July. Dr. Craig Lowrey, Principal Consultant at Cornwall Insight, emphasized the significance of ongoing savings and the need for investments in upgrading energy networks for a more secure and resilient system.
Consumers are reminded that fixed rate tariffs will also benefit from the announced savings, with energy suppliers expected to communicate tariff changes. The largest cost component under the price cap is wholesale energy, reflecting what energy suppliers pay for gas and electricity. Ofgem is set to announce its July price cap by May 27, 2026.