Power regulator Ofgem will announce the brand new value cap on Thursday – and analysts are lastly predicting excellent news after months of record-high payments.
Fuel and electrical energy prices have skyrocketed for the reason that begin of 2021, with the typical dwelling now spending £2,500 on their payments. With out the federal government’s vitality value assure, this determine could be even larger.
Nonetheless, the wholesale price of vitality has now began to return down, from almost £6 per therm (a unit of warmth) in August final 12 months to lower than £1 at present. The welcome results of this needs to be felt by the general public as we enter the second half of 2023, specialists say.
When will the vitality invoice go down?
On Thursday, Ofgem will announce the brand new vitality value cap for July to September.
The present value cap is £3,280 per 12 months for the typical family. Nonetheless, persons are at the moment unaffected by the value cap as a result of authorities’s vitality value assure, which sees a median family pay £2,500 as a substitute.
The value assure expires in July, so customers will once more be sure by the value cap.
The excellent news, nonetheless, is that analysts Cornwall Perception predict the cap will drop to £2,053 for the typical family. That is £1,227 lower than the present cap and £447 lower than the value assure.
This forecast relies on electrical energy costing 29.5 pence per kWh and fuel costing 7.5 pence per kWh.
Regardless of the cap having fallen attributable to skyrocketing costs over the previous two years, the determine stays greater than £1,000 a 12 months larger than pre-pandemic value caps.
Cornwall Perception mentioned: “We don’t at the moment anticipate payments to return to pre-2020 ranges till the top of the last decade on the earliest. Nonetheless, we hope to see the return of extra aggressive flat price vitality tariffs as costs start to rise. stabilize, giving customers extra choices to handle their vitality prices.
Why are vitality costs so excessive?
The quantity we pay for vitality is linked to the wholesale value of fuel and electrical energy – how a lot vitality suppliers pay for the vitality they get from the businesses that generate it.
This wholesale value has risen sharply for the reason that pandemic, initially as family conduct slowly returned to pre-pandemic norms and vitality demand elevated. By the summer season of 2021, fuel costs had risen by greater than 50 % in six months.
Costs then rose extra sharply as demand elevated additional within the autumn and winter months. When Russia invaded Ukraine in February 2022, wholesale costs had already quadrupled year-on-year. The battle diminished the supply of fuel from Russia, driving costs larger till they peaked in August final 12 months.
How does the vitality value ceiling work?
The vitality value cap limits the quantity {that a} provider could cost for its commonplace price. It was launched in January 2019 by Ofgem with the intention of preserving prices low for UK households.
It consists of the fastened price (a set every day quantity it’s a must to pay for vitality, no matter how a lot vitality you utilize) and the utmost value for every unit of electrical energy and fuel. The value is ready per kilowatt hour (kWh).
To indicate what this appears to be like like for a median particular person, Ofgem makes use of a determine of 12,000 kWh for a family’s annual fuel consumption when asserting the value cap. Nonetheless, that is solely a tenet to see what the change in value cap does to the annual vitality invoice of a typical family.
The federal government launched the vitality value assure final fall as a short lived substitute to the value cap to guard customers from sharp value hikes, after Ofgem introduced a deliberate 80 % improve within the cap.
Below the assure, suppliers are additional restricted in what they will cost households per unit of vitality, with the federal government making up the distinction.
The common family pays £2,500 a 12 months on their under-guaranteed utility payments (33.21 pence per kWh for electrical energy and 10.31 pence for fuel), though the precise quantity folks pays will depend upon their utilization.
The assure was attributable to be elevated by £500 to £3,000 in April, however the chancellor, Jeremy Hunt, made the choice to maintain it at £2,500 till June. After that, households and vitality firms are once more sure by the value ceiling.
