Energy Costs, Price Caps & Tariffs – How are you affected?
For many families the cost-of-living crisis remains a day-to-day reality, whilst the sun may be shining in summer (or not!), thoughts of winter months and energy costs are not far from our thoughts. We know that 5.6 million UK households continue to struggle with energy costs and over 2 million households owe over £3 billion in energy debt.
Every quarter, Ofgem the UK energy regulator imposes on energy suppliers the maximum unit price rates they may charge for their standard variable energy tariffs and the maximum daily standing charges for maintaining their supply infrastructure.
The tariff (unit price) rates can rise or fall, depending on prevailing world energy demands and energy supply costs. Daily standing charge costs can vary by negotiation between Ofgem and the suppliers. Now, if you follow the news, you may have seen that so far in 2024, Ofgem announced new energy tariff prices, first in April and more recently for July 2024. Each time, many headlines have pronounced that ‘Energy bills will fall by £ x ’, but is this really true?
Well, … it depends on several factors…..
Regardless of any price caps, you will always pay more if you use more, so for lower bills, economising personal use should remain a priority for all.
In the first quarter of this year, Ofgem allowed unit price increases for gas of 7.7% and for electricity a rise of 4.6% – both above headline inflation. However, daily standing charges for both stayed the same.
From the 1stApril, until 30th June, Ofgem announced reduced unit price rates of 18.6% for gas and 14.4% for electricity. (The latter reductions have in turn fed into a lower headline inflation rate.) ‘Good news’ you may think… however, only partly; because Ofgem also allowed the supplier’s daily standing charges to increase by 18.6% for gas and 12.7% for electricity. Standing charges are paid by everyone, regardless of how well they economise their personal use, so… maybe not such good news after all.
Looking ahead, from the 1st July until September, Ofgem will lower unit price rates again, by 9.3% for gas and by 8.7% for electricity, whilst the daily standing charges will remain unchanged. Thereafter, energy analysts currently predict that prices will be allowed to increase again from the 1st October.
So…. What does all that mean for your energy bills?
Firstly, and importantly, note that if you are currently signed up to a fixed tariff deal with your supplier, your existing unit price and standing charge rates, will not change until your tariff period ends. So, depending on when you fixed your tariff period, you may end up paying more (or less) than the current Ofgem maximum unit rates. Then, when you do face a tariff change, you may experience a sudden increase, or decrease in your bills.
However, for some time now, most UK households have been on their supplier’s default standard variable tariffs, and these are the tariffs directly affected by Ofgem rules. So, variable tariff households, using average consumption quantities, should see their bills fall or rise, in line with Ofgem tariff changes and those headline predictions.
Secondly and equally importantly, note that how you pay can also affect how much you pay. Those headline predictions are based on average consumption by customers paying by monthly direct debit. Households on pre-payment meters will currently pay slightly less than customers on direct debit. Customers paying quarterly in arrears by cash or cheque will pay slightly more.
Standing charges can also vary by region, reflecting the differences in supplier regional infrastructures. Finally, and in addition, Ofgem has agreed to allow all suppliers to add an extra £28 to every customer’s bill, to cover the extra costs to each supplier of maintaining the £3 billion debt charges of the 2 million households in arrears.
Should you fix your Tariff?
With energy bills set to rise later this year, taking out a cheaper fixed-rate deal may help you save money. But many fixed rate energy deals are more expensive than the price cap, either now or at its predicted level later in the year.
Many fixes also come with expensive early repayment charges if a customer wants to leave the deal before its natural end point – normally 12 or 24 months. To know if a fixed-rate deal is worth taking, you first need to know how much energy you use and the unit rates and standing charges you currently pay.
This can be found on your latest energy bill, or by logging in to your energy account online. Armed with this information, compare what you pay now with the unit rates and standing charges on offer with any fixed rate you are offered. If the fix is cheaper, either at the price you pay today or the price you will pay from July, it is well worth considering changing if energy prices do rise as predicted.
In conclusion, energy prices and supplier tariff rates are falling for now, as is headline inflation, which in the short term is good news for customers. Longer term, this may be reversed, and customers will need to continue to economise, continue to check their bills and monitor which tariffs may be best for them.
As Adam Scorer, the Chief Executive of Fuel Poverty Charity, National Energy Action, says:
‘Every fall in the price cap is good news. It should make life a little easier for everyone. But for our clients, and for millions of households in fuel poverty, there remains a huge gap between current prices and affordable energy bills.
… Millions will still be in negative budgets. Even more will be cut off from basic levels of heat and power. Unfortunately, fuel poor households will not enjoy affordable energy through occasional small changes in the price cap.’
Keith Jones – Community Engagement Team
Citizens Advice North Herts
Citizens Advice Energy information may be found here: Your energy supply – Citizens Advice
Details of Ofgem Tariff rates may be found here; Energy price cap | Ofgem
