Ofgem: Energy bills to fall by around 12% as new price cap is announced

Ofgem, the UK’s energy regulator, has announced a significant 12.3% reduction in the energy price cap for the second quarter of 2024, effective from 1 April to 30 June.

This adjustment sets a new maximum rate that energy suppliers can charge customers, resulting in the average household’s annual dual-fuel bill, paid by direct debit, falling to £1,690—a saving of approximately £20 per month.

This reduction brings energy bills to their lowest level since the onset of the market turbulence following Russia’s invasion of Ukraine in February 2022, which led to a spike in wholesale energy prices.

A healthy flow of gas across the Atlantic, coupled with a relatively mild winter, has seen higher than expected gas reserves in Europe and consequently lower wholesale prices.

Additionally, high levels of gas reserves in Asia have helped drive down global prices.

Despite this positive development, Ofgem acknowledges the ongoing cost of living challenges facing many UK households, particularly as energy debt hits a record £3.1 billion.

Jonathan Brearley, CEO of Ofgem, said:

“This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.

“That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.

“We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future. We’ll be stepping back to look at issues surrounding debt and affordability across market for struggling consumers, which we’ll be announcing soon.

“These steps highlight the limitations of the current system – we can only move costs around – so we welcome news that the Government is opening the conversation on the future of price regulation, seeking views on how standard energy deals can be made more flexible so customers pay less if using electricity when prices are lower.

“But longer term we need to think about what more can be done for those who simply cannot afford to pay their energy bills even as prices fall. As we return to something closer to normality we have an opportunity to reset and reframe the energy market to make sure it’s ready to protect customers if prices rise again.”

While the wholesale element of the cap continues to fall, electricity standing charges are set to increase. This is primarily due to the ongoing reform of network charges, which has shifted more of the charges from per unit to per day, meaning that customers will incur these costs regardless of their actual consumption.

Ofgem recently held a consultation on how standing charges are applied to energy bills, and is examining the options and potential alternatives.

This is in addition to the provisions for bad debt, and further bill adjustments for customers depending upon how they pay their energy bills.

Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:

“After January’s price cap rise, it is good to see energy bills moving in the right direction for households. Signs currently point towards costs remaining below current levels for the rest of the year, and while it’s wise not to get ahead of ourselves, there are promising signals that the energy market is starting to stabilise.

“While the prospect of lower bills is certainly positive, they still remain hundreds of pounds above what customers were paying at the start of the decade, with little to indicate that will be changing any time soon.

“Ofgem’s review of standing charges, alongside other discussions on how the cap is calculated, will no doubt have a positive impact on some household energy costs, but fundamental questions remain on how to address the challenge of affordability for households. The price cap is unlikely to be the ticket back to pre-energy crisis bills.

“Ultimately progress requires investment in a resilient, sustainable, energy system, one based on renewable energy supplies and improved energy efficiency. As we approach the general election, we would urge politicians to prioritise this critical issue and unveil solid plans for action.”

The announcement by Ofgem comes just days after UK government fuel poverty statistics show that fuel poor households are falling into deeper fuel poverty, now paying on average £417 per year more for energy than if they were living in a more efficient home.

 Chief Executive of National Energy Action (NEA), Adam Scorer, says:

“This is, of course, good news – any fall in energy bills is welcome. However, the drop coming in April still leaves bills significantly higher than they were before the energy crisis began. For two and a half years, household budgets have been stretched beyond breaking point by high energy bills.

“Households in fuel poverty, on negative budgets and in impossible debt will see no chink of light this morning. The cost gap between where they are right now and escaping fuel poverty is getting wider. Whatever relief might be felt by this news, years of punishingly high energy bills will continue to take a heavy toll.

“Stubbornly high prices are here for the foreseeable future – the government cannot simply ignore this as the new normal. We need a social tariff to provide permanent, deep protection for low-income households, we need action on debt to bring households out of this spiral, and we need long-term, significant investment in energy efficiency to make sure households are resilient against energy crises.”