Ofgem firms up price cap reduction for April
Ofgem has confirmed a decrease of almost £1,000 for the price cap for domestic energy users, citing a “fundamental shift” in wholesale energy costs. But most homes will still see bills increasing by up to 20% between March and April this year.
The energy regulator has today (27 February) confirmed that the cap will be set at an annual level of £3,280 for a dual-fuel household based on typical consumption, down from £4,279. The change will come into effect on 1 April.
The average home will not pay more than the equivalent of £3,000 from 1 April, due to support available from the UK Government through initiatives such as the Energy Price Guarantee.
But, given that the Guarantee currently caps bills to £2,500, and that the cap is increasing to £3,000 in April, most homes will still see their bills increasing by at least 20% between March 2023 and April 2023. The Trades Union Congress (TUC) has stated that the year-on-year increase for April bills is around 52%.
The Energy Price Guarantee is currently due to run through to the end of March 2024.
Ofgem chief executive Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that for many households this news will be deeply concerning.
“However, today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease.
“If the reduction in wholesale prices we’re currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower.”
Several environmental groups are using the announcement to further their calls for more Government investment in energy efficiency and in home-grown, clean energy, which will reduce the UK’s reliance on imported gas in the long run.
“Though the new Ofgem price cap won’t have an immediate impact on people’s bills, it’s a stark reminder that energy remains incredibly unaffordable and that we are still at the whim of volatile global gas markets,” said Friends of the Earth’s warm homes campaigner Connor Schwartz.
Clearly, there is an ongoing need for action from the government to support people through this crisis and to prevent the next one.
“While some predictions say energy bills might finally start to drop later in the year, they’ll still be double what they were a year ago. This is hardly reassuring to those who are barely getting by. And even if the government does extend its energy price guarantee beyond April, which it should, it’s only a sticking-plaster solution that fails to address the root causes of the energy crisis.
“The government must not delay any further in rolling out a street-by-street insulation programme. Not only is this the best solution to lower bills permanently and help those struggling most, it’s also badly needed for the sake of our planet.”
At the Autumn Statement last November, Chancellor Jeremy Hunt did announce £6bn of extra funding for energy efficiency, but delayed its allocation until post-2025. This came as a disappointment to many social and environmental groups, given the UK Government’s poor history on delivering national insulation schemes for homes.
Hunt is due to deliver the Budget in mid-April, and the Energy and Climate Intelligence Unit (ECIU) would like to see increased investment in insulation, alongside more targeted support for low-carbon heating. The Government was slammed for its low-carbon heating approach earlier this month by Lords Environment and Climate Change Committee. The ECIU also wants to see moves to make onshore wind development easier, having previously praised a decision to more easily enable development in areas with strong local support.
The ECIU’s energy analyst Jess Ralston said: “The old energy system where gas dictates the price of both heating and electricity has left households paying much higher bills because of volatile international gas prices.
“The ban on cheap onshore wind and low Government ambition on improving uninsulated homes has left a higher burden for bill and tax payers alike.”
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.