A new energy price cap will reduce bills for 15 million people in the UK this winter.
The UK’s energy regulator Ofgem said the cap will fall from £1,126 to £1,042 from October to March, the biggest fall since the scheme was introduced last January, reports the Mirror.
Ofgem estimates 11 million households on default energy tariffs will save £84 as a result, while four million on prepayment metres will see their bills fall £95 over the winter.
It says the reduction is due to a sharp decrease in wholesale gas prices since the cap was last updated in February. It added that the coronavirus pandemic has reduced demand for energy, although wholesale gas prices have started to recover since hitting a 20-year low in March. If wholesale energy prices continue to rise in the next few months, the cap is likely to rise in April.
The level of the cap is adjusted by Ofgem twice a year to reflect the estimated costs of supplying electricity and gas to homes for the next six-month period.
Suppliers cannot charge customers who do not switch and are on default deals more than the level of the cap, although they can charge less. This ensures these customers pay a fairer price for their energy.
Jonathan Brearley, chief executive of Ofgem, said: ” Millions of households, many of whom face financial hardship due to the Covid-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”
However, critics say the cap is the least effective way to save on your bills.
Ed Dodman, director of regulatory affairs at the Energy Ombudsman, said: “This reduction in the price cap represents a much-needed financial boost for millions of households, at a time when many people are struggling due to the economic impact of Covid-19 and lockdown.
“Shopping around for a cheaper energy deal is still the best way to save money, particularly for customers on standard variable tariffs, but before switching to a new supplier it’s a good idea to check out its customer service credentials.
“Review sites and other online tools give an idea of the quality of service on offer and can help people to make an informed decision when switching. Of course price matters, especially at the moment, but customer service is important too.”
Peter Earl, head of energy at comparethemarket.com, added: “The price cap is not a good deal, it’s a maximum price limit. While it is encouraging that from October customers on a standard or default tariff (SVT) on average will see their annual bill fall by £84, the customer could stand to save, on average, £217 more if they switched to one of the best priced deals on the market.
“Customers who have switched supplier in the current price cap period have benefited from some of the lowest prices we have seen in recent years. The pandemic crisis has seen a rise in energy costs for households spending more time at home, paying £32 per month more on average. Customers on an SVT will have paid even more.”