Energy price cap to fall: How much you’ll save and whether you should fix in 2024

From April a typical household will pay £1,690 a year for their energy bills, following a fall in the “price cap”.

This is a saving of £238 over the course of a year – or around £20 a month – the energy regulator said – meaning households can expect to pay significantly less for their energy in spring.

The fall was attributed to a significant decline in wholesale energy costs since mid-November. Fears that prices would soar in the wake of events abroad never materialised, and analysts Cornwall Insight predicts the cap will fall even further to £1,463 in July.

Markets were spooked late last year when the war in Gaza hit Israeli gas fields, reducing output to Egypt where it is processed into liquefied natural gas (LNG) and impacting supply.

Analysts Cornwall Insight said disruptions to the Balticconnector pipeline between Finland and Estonia, and industrial action at gas production facilities in Australia were also affecting prices.

Ofgem’s new cap means energy bills are the lowest they have been for two years.

Last year, a government-subsidised discount knocked £400 off every home’s energy bills in the five months between November 2022 and March 2023.

But with this help no longer available and standing charges costing as much as £300 a year, some 7.2 million billpayers endured the most expensive winter on record, according to the Resolution Foundation think tank.

Experts have warned bills are unlikely to fall below £1,700 for the rest of the decade.

Here, The Telegraph covers what the energy price cap is, whether it’s time to consider a fixed-term deal, and what you can do now to protect yourself from an energy price rise this winter.

What is the energy price cap?

The price cap limits what energy providers can charge customers on a “standard variable tariff”. It does not apply to fixed-rate deals. Most households are currently on variable deals as providers were unable to offer competitive fixes throughout the energy crisis.

The cap is not a limit on the amount households will pay each year. The rate is based on usage – so use more, and you’ll pay more.

The cap is determined by wholesale costs and is revised every three months. The price cap rose from a low of £1,042 in February 2020 to £1,971 in April 2022. As Russia’s war in Ukraine intensified, driving up wholesale prices, the cap continued to rise – eventually reaching a peak of £4,279 in January 2023.

This prompted the Government to intervene in September 2022 by introducing the Energy Price Guarantee, a similar cap on energy bills that limited the average household bill to £2,500 a year regardless of the turmoil in the wholesale market.

The guarantee was due to be raised to £3,000 a year in March. However, an unexpected drop in wholesale energy prices allowed the Government to freeze it at £2,500 until June, by which point energy prices were expected to drop.

From July, when the Ofgem-set price cap finally fell below the government-backed EPG, households on variable deals automatically reverted to the former.

It is important to understand the price cap does not limit the amount you will pay over the course of a year. The amount of energy a typical household uses in one year is known as the typical domestic consumption value (TDCV) – and the headline figure of £1,928 is simply how much the TDCV costs under current market rates.

The cap simply fixes the rates at which you are charged for your gas and electricity usage, as well as the standing charges for both.

Standing charges are billed to households at a daily rate regardless of how much energy they use – and these will increase from April so that households pay roughly £6.40 a week, or £334 a year for a house using electricity and gas.

How much will I save when prices go down?

From April 1 to July 31, the unit rate for electricity will fall from 28.62p to 24.50p per kWh. Gas will fall from 7.42p to 6.04p per kWh.

In short, your electrical appliances will cost around 14pc less to run from April than they do now, and your heating (if gas) will cost around 18pc less.

To take an example of how the price cap affects your own usage, an electric kettle of water will cost 4p to boil under the April price cap.

The average Briton drinks 884 cups of tea a year, according to a 2015 YouGov survey, meaning if you were to boil a fresh kettle of water for every cup, that would have cost you £35.36.

Under the current cap, which lasts from Jan 1 to March 31, this would have cost you £41.10 a week – saving you £5.74 a year, although costs can vary slightly depending on the power use of your kettle.

Electric showers will cost 18p for every five minutes, or £1.26 a week, assuming one shower a day – this doubles to £2.52 for 10-minute showers. A family of four doing this would rack up £10.10 a week on showers alone.

Under the April cap, washing machines, tumble dryers and dishwashers will remain expensive. A typical eco cycle on a fully loaded washing machine will cost 31p – and a 90-minute cycle on a washing machine will cost 96p – and an hour’s ironing costs 36p on top of that.

One full cycle on a tumble dryer with a full load will cost £1.17 under new rates, while an eco cycle on a dishwasher will cost 23p, according to Citizens Advice.

Easy ways to save money on energy bills

Though parts of Britain have enjoyed a relatively mild winter, the price cap is forecast to change again in July and then October, making this an ideal time to sort out your home’s energy efficiency if you haven’t already.

There are some simple things you can do now to stand you in better stead for when temperatures drop.

Get your boiler serviced

Getting your boiler serviced once a year is a good way to make sure it’s running as efficiently as possible. Many people won’t be thinking much about their boilers during the autumn months, but it can be a good time to book a service – some engineers may be less busy, and may even offer “off-peak” prices.

What’s more, if something is found to be wrong with your boiler, you won’t need to worry about bringing in energy-guzzling electric heaters should you need to switch it off for repairs.

Sort your insulation

A quarter of heat is lost through the roof of an uninsulated home, whether you live in a tiny cottage or a sprawling mansion. Installing loft insulation only costs between £400 and £1,200 for the average house and should pay for itself many times over in its 40-year lifetime, something well worth considering while bills remain high.

Should I buy a fixed-tariff deal?

Before the energy crisis, households were used to shopping around for competitive fixed-price deals.

However, the energy crisis upended the market, leaving variable rates governed by the price cap as the only viable option. Fixed rates became so expensive that providers stopped offering them altogether.

However, as wholesale prices have cooled, a number of fixed-rate deals have come on the market after years of being unavailable.

Jonathan Brearley, chief executive of Ofgem, said: “We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the price cap.

“People should weigh up all the information, seek independent advice from trusted sources and consider what is most important for them whether that’s the lowest price or the security of a fixed deal.”

Emily Seymour, energy editor at consumer publication Which?, said that while there were some fixed deals with rates close to the April price cap, most of them would save households “very little” when it comes into force.

She said: “With the price cap predicted to remain fairly stable for the rest of 2024, more competitive deals may become available in the coming months.

Energy providers have ramped up exit fees in recent years, meaning that a household looking to ditch an unfavourable rate will likely pay £150 – £75 per fuel.

Ms Seymour said: “As a rule of thumb, we wouldn’t recommend fixing a contract longer than 12 months, higher than the April price cap or with significant exit fees – in case circumstances change and you want to switch to a better deal.”

Several providers have introduced fixed rates that are significantly cheaper than the current cap, but such fixes may end up costing consumers more in the long run.

British Gas’s Price Promise, unveiled last week, is £229 a year cheaper than the January-March cap, and then switches customers to a rate cheaper than the April cap.

However, customers who sign up for this deal are then locked into the April rate for a year, and are hit with a £150 exit fee if they attempt to revert to the standard variable rate– even if they stay with British Gas.

The provider will waive exit charges if the customer switches to another fixed rate with British Gas, but the only fix the provider offers is £1,799 a year, which is slightly cheaper than the January cap, but significantly more expensive than the April rate.

Meanwhile, Octopus Energy’s Loyal 12-month fix saves a mere £15 a year compared to the average bill under the April price cap – and is only available to existing customers, according to comparison website Uswitch.

E.On Next’s Pledge Tracker 12-month offer promises to track a £50 a year saving on the price cap regardless of how low it falls. The deal is available to new and existing customers.

Utility Warehouse’s Fixed Saver 14, meanwhile, works out as £100 cheaper than the April price cap. The catch here is that customers must also sign up for two other services offered by the provider – such as mobile and broadband.

Will Owen, Uswitch energy expert, said: “It is important that consumers look at the fine print of any tariff they are considering to understand what they are signing up to. It is always worthwhile comparing tariffs with other deals to check if it is right for your circumstances.”

Proponents of fixed-rate deals argue they offer long-term security, as unlike variable tariffs they cannot change throughout the duration of the deal. This could shield households from shocks in the wholesale market.

However, analysts across the sector predict the cap will fall again when it is reviewed in July, meaning consumers who take that risk now could end up paying an inflated rate for their power use.

Dr Craig Lowrey, of analysts Cornwall Insight, added: “Those seeking alternative options to bypass the high cap prices through the return of fixed tariffs will need to manage their expectations, as the availability of deals below the cap is still uncertain.

“Even for those able to secure a below-cap rate, it remains a risky decision. There is a possibility that the cap could decrease, leading to consumers locked into higher-than-market prices.”