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Energy price cap to drop by £84

Energy price cap to drop by £84

Why pay more for the same energy?

Switch and beat the price cap today!

Ofgem, the energy regulator, has announced a reduction to the energy price cap for households on standard variable and default tariffs.

The price cap will drop by £84 as of 1 October 2020, meaning the average customer on a standard variable tariff will pay a maximum of £1,064 per year for their gas and electricity. The prepayment meter tariff has also been reduced to £1,042 - an average price drop of £95.

The new rates will mean lower bills for around half of UK households, including 11 million people on standard variable tariffs and a further 4 million on prepayment energy meters.

The energy price cap was introduced in January 2019 and sets the maximum price energy suppliers can charge per unit for their standard variable or default tariffs. The cap is reviewed twice a year in February and August, with the new rates coming into effect in April and October.

Price cut for only the most expensive tariffs

The price cap only affects standard variable tariffs and prepayment meter tariffs, which are typically the most expensive types of energy plan.

Standard variable tariffs (SVTs) are suppliers’ generic energy plans, and their rates can fluctuate in line with the price cap. If you haven't switched energy before, or you've rolled off a fixed energy deal, you're likely to be on one of these tariffs.

The latest change means people on these tariffs will see lower bills from October, but many could make further savings by switching to a better-value fixed deal. Uswitch data shows there is a £232 difference between the new price cap and the cheapest fixed deals on the market today.

Richard Neudegg, head of regulation at Uswitch, said: “Any drop in the price cap will undoubtedly be good for consumers who remain on SVTs. But consumers should remain vigilant - this is money off what are the most expensive tariffs already, when there are much better deals available that offer the ability to fix rates. Consumers are also subject to variable volatility in the cap levels, with Ofgem reviewing prices every six months.”

Price rise warning

The price cap rate tracks changes in the wholesale price of energy, which fell significantly at the beginning of the COVID-19 outbreak. However, these prices have started to recover, and Ofgem has warned that the cap could be increased again in April if the trend continues.

Richard Neudegg said: “Wholesale energy prices plunged earlier this year following COVID-19 lockdown measures, and this passes some of that reduction onto the energy bills of millions of households who are on standard variable tariffs.”

“With Ofgem already saying that the cap may need to rise in April if wholesale trends continue, locking in a 12-month fixed deal is looking like an even smarter choice for consumers.”

Why pay more for the same energy?

Switch and beat the price cap today!

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