Don’t be seduced by the energy price cap reduction

If you’re on an energy tariff that’s subject to a price cap, the latest reduction is welcome news. But you could still save hundreds of pounds by switching to a fixed-rate tariff

Sat in front of radiator

The latest energy price cap came into effect on 1 April, 2020, by Ofgem, the energy market regulator.

The caps, which are adjusted each April and October, have fallen by £17. The new cap for households with variable rate or ‘default’ tariffs is £1,162, down from the current £1,179. For pre-payment meters, the cap is set at £1,200, down from £1,217.

In total, around 15 million households are affected.

The caps mean that an energy provider cannot charge more than the specified sum for these types of tariff.

The quoted figures are for typical households using an average amount of energy, so the precise figure for each user will vary according to their consumption levels.

While any reduction in the caps is welcome news, people on these tariffs should not assume they’re on a good deal as a result of the cuts.

Variable rate tariffs are notoriously poor value when compared to fixed-rate deals, which lock in the price-per-unit of gas and/or electricity for 12, 18 or 24 months.

At the moment, there are over 100 fixed-rate tariffs that cost less than the new level of the variable rate cap. Many are priced well below £900, and in some cases, you could save well over £300 a year by switching.

And if you are spending more time at home, you may be using more energy which will be reflected in your gas and electricity bills. If you are on a standard-variable tariff, it’s worth checking to see if you could be making a saving and take one small step towards Money Calm.

You can run a quote here to see how much you could save on your current bill.

You can also switch to a cheaper deal if you have a pre-payment meter. And you may be able to switch from a pre-payment meter to a credit meter, where you pay in arrears for the energy you use.

It’s worth checking with your energy provider to see if you can move away from a pre-payment tariff, as these tend to be more expensive than standard tariffs. But remember to check with your landlord as well if your renting.

Why has the cap fallen – and what does the future hold?

The cap has reduced because of falls in the wholesale price of gas and electricity – Ofgem is determined that energy providers pass these savings on to consumers.

Wholesale prices are falling because we’ve enjoyed a relatively mild winter. That means we did not burn as much energy to keep ourselves warm, and prices have followed demand downwards.

But one of the benefits of a fixed-rate tariff is that the price-per-unit won’t change for the duration of the deal, regardless of what happens to wholesale prices.

So if you switch and fix now or in the coming days, you’ll still be paying today’s low prices when next winter arrives.

Stephen Murray, our energy expert, says switching to a fixed-rate tariff is a no brainer: “There are dozens of deals that are cheaper than the new price cap level, so why settle for a more expensive tariff?

“Wholesale prices are at their lowest since 2016, and we’re unlikely to see them go much lower. If there’s a change in the weather and wholesale prices rise, then the cap might be increased at the next review in August, for October implementation.

“If you’ve fixed your rate, however, you don’t have to worry as you’ve locked in today’s low prices for the coming 12 months.”

Why should I switch energy suppliers?

The easiest way to bring your bills back down is by switching supplier. In fact, by doing so, you could save at least £248* on your bills.

All you need to do is tell us a little about yourself, your home, and your current usage figures – this will help your new supplier calculate a more accurate bill than if it used estimates. Then you’ll be able to compare quotes from providers across the market, from the Big Six to smaller companies as well as green energy suppliers.

Once you’ve found the deal you want, click through to the provider’s website to finalise your purchase and start saving.

Thanks to the Energy Switch Guarantee, your new provider will take care of all the details, your service won’t be interrupted, and you should be on your new tariff within 21 days.

You can also sign up for our Energy Monitor, which will send you a notification if a deal comes onto the market that costs less than the one you’re on at the moment.

You choose the level of saving at which you want to receive an alert, starting at £25 a year.

 

*51% of customers that applied to switch via MoneySuperMarket could save at least £248.37, November 2019.

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