Price cap falls as Government unveils new funding pot for energy tariffs

The Government has launched a number of initiatives to help households save on energy costs, as Ofgem confirms that the current price cap will fall by more than £200 from April this year.

The energy price cap, which is the maximum a typical household pays for gas and electricity has drastically increased over the past two years, with many households paying 50% more on the energy than they did in 2021.

Ofgem has confirmed that the price cap will fall by £238 in April, the lowest it’s been since Russia’s invasion of Ukraine spiked gas prices.

To coincide with the new price cap, the Government is launching new initiatives to examine how new energy deals, tariffs and solutions can be implemented for households and businesses to save on costs.

Included is a new £10m funding pot for companies to test new technologies and tariffs with their customers, to make the most of cheap, low-carbon power.

The Government will also explore how to better engage with households to get more smart meters installed.

Energy Security Secretary Claire Coutinho said: “Today’s announcement that energy bills will fall by £238 on average will be welcome news for families across the country. This means households will be paying the lowest cost for their energy since Putin’s illegal invasion of Ukraine two years ago.

“My mission is to cut costs and get bills even lower so that families can spend their money on the things that matter most to them. Today we’re announcing further measures to slash bills for families and improve access to cheaper, flexible deals.”

Funding for the Alternative Energy Markets Innovation Programme is part of the £65m Flexibility Innovation Programme, and builds into the Department for Energy Security and Net Zero’s £1bn Net Zero Innovation Portfolio (NZIP).

The Government has confirmed that £10m will support projects that will give communities the chance to trial personalised energy tariffs and innovative technologies, including smart chargers for electric vehicles (EVs).

As a result, the Energy and Climate Intelligence Unit (ECIU) has claimed that the new price cap could help EV owners save more than £75 a year in charging costs.

The ECIU’s research found that today’s fall in electricity prices, could see an increase in the “premium” that traditional cars pay for petrol of more than £100, up to £675 a year.

Previous analysis by the ECIU indicates that, by 2030, petrol cars will be £1,350 more expensive to operate than EVs than they are today.

The ECIU’s head of transport Colin Walker said: “Drivers of petrol cars already pay a significant petrol premium to run those vehicles, compared to EVs. This premium will only get higher as electricity prices come down and EVs become even cheaper to run.

“Political instability has historically driven petrol price volatility and this is set to continue. EVs help protect consumers from these price shocks, and as the second-hand EV market continues to expand more households are able to afford to buy an EV and make these savings. As North Sea oil output inevitably declines, EVs can be charged on electricity generated from wind farms instead.”

Business vulnerabilities

Last year, the Government announced new funding for businesses to help them manage the costs of their energy bills from April 2023 to March this year.

Moreover, as part of the Energy Bill Relief scheme, the Government has provided more than £7bn in funding to help businesses cover rising energy costs.

The level of support that British businesses receive for their energy bills from the Government decreased in April, leaving some small firms facing triple the costs on energy bills. This hasn’t eased corporate concerns about stability during a period of high prices.

Earlier this month, a survey of 750 UK organisations, conducted by PwC, found that many are grappling with soaring energy costs.

In total, 77% of survey respondents indicating that they have had to raise the price of their products and services over the past two years due to energy-related expenditures.

Moreover, 81% anticipate further price hikes within the next two years, while 72% foresee negative repercussions on profits and 71% express concerns about diminished international competitiveness.

Separate research, based on a survey carried out by AECOM, found that a third of businesses are encountering challenges in investing in low-carbon and energy saving technologies due to the high expenses linked to implementing new technologies.

Additionally, a quarter of the respondents cite high energy costs as a reason for delayed climate ambitions.