The energy price cap has fallen to its lowest level since Russia’s invasion of Ukraine in 2022, Ofgem has confirmed.
In an update to the default tariff cap, the regulator said it will fall by just over 12% on the previous quarter from 1 April to 30 June 2024.
For an average household paying by direct debit for dual fuel this equates to £1,690, a drop of £238 over the course of a year – a saving of around £20 a month.
Yet despite this milestone, the regulator has warned that energy debt has reached a record figure of £3.1 billion. As such, it has made a decision to introduce a temporary adjustment to the cap which will allow suppliers to recover costs related to increased levels of debt.
Alongside the cap update on Friday morning (23 February), Ofgem has also announced:
· Confirmation of the levelisation of standing charges to remove the ‘PPM premium’ previously incurred by prepayment customers
· A decision to extend the ban on acquisition-only tariffs for up to another 12 months
· Confirmation of the end of the Market Stabilisation Charge from 1 April
· A decision not to change wholesale cost allowances following a review conducted in late 2023
Debt recovery
A temporary allowance of £28 per year (equivalent to £2.33 per month) is being introduced to “make sure suppliers have sufficient funds to support customers who are struggling”.
This will be paid for by direct debit or standard credit customers and is partly offset by the termination of an allowance worth £11 per year that covered debt costs related to the pandemic.
This charge will not impact PPM customers as they do not build up the same level of debt as credit customers due to the fact they pay as they go.
Ending the PPM premium
Standing charges across payment types will remain equal following the end of government support via the Energy Price Guarantee.
Ofgem has taken steps to provide a lasting solution, which “must be funded by bill payers rather than tax payers, to maintain fairness in the system”.
This will see PPM customers save around £49 per year while direct debit customers will pay £10 per year more.
“Increasing network costs has also contributed to the rise in standing charges – and in anticipation of this we published a call for input in November 2023 and are currently reviewing more than 40,000 responses,” Ofgem added.
Extending the ban on acquisition-only tariffs
The ban on acquisition-only tariffs bars suppliers from luring in new customers by offering them exclusive cheaper tariffs that are not available to their existing customer base.
It was introduced alongside the Market Stabilisation Charge to ensure fair competition as wholesale energy prices began to soar.
Ofgem said it will extend the ban for another 12 months, but added it intends to open a consultation to consider shortening this extension to just six months.
It explained: “As competition returns to the market, Ofgem is encouraging rising numbers of customers switching with a number of measures, including shortening the time suppliers are given to complete a customer transfer from 15 days to just five.
“Additionally, from 1 April, the Market Stabilisation Charge – introduced in tandem with the BAT – will come to an end, meaning suppliers are no longer required to compensate a new customer’s previous supplier when they switch.”
Wholesale adjustment
Ofgem has reviewed whether suppliers experienced differences between wholesale costs and the allowances they were allowed to recover via the price cap.
The regulator has concluded to take no further action however, as wholesale costs did not systematically differ from allowances.
Commenting on the announcement Ofgem boss Jonathan Brearley 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.”