Extra measures to help tackle fuel poverty
The energy regulator announced a series of other measures to support households and curb the energy debt on Friday morning (February 23). These include levelising standing charges as well as additional temporary charges for some customers.
National Energy Action, the national fuel poverty charity, welcomed the news but estimated that approximately six million households in the UK will remain trapped in fuel poverty despite the drop in energy prices. Fuel poverty is when a household needs to spend more than 10% of its income on energy to heat a home to a satisfactory level. According to the charity, energy costs come April will remain around 49% higher than pre-energy crisis levels despite the fall.
Jonathan Brearley, CEO of Ogfem, added: "This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.
“That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.
“We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future. We'll be stepping back to look at issues surrounding debt and affordability across the market for struggling consumers, which we'll be announcing soon."
Additional £28 charge introduced to curb energy debt
The total amount of energy debt owed by customers to energy companies has now reached a record figure of £3.1bn. The temporary additional charge is designed to tackle the record levels of energy debt in the UK.
The short-term measure will see Ofgem introduce a temporary additional payment of £28 per year to ensure suppliers have the funds to support struggling customers. The additional payment, which amounts to around £2.33 per month, will be added to the bills of customers who pay their bills by direct debit or standard credit. The charge will not impact those on prepayment meters as they top up as needed and therefore do not build up the same level of debt. This payment has been accounted for within energy price cap figures and is expected to last for 12 months according to the national fuel poverty charity.
"PPM premium" standing charges removed in equalisation move
Ofgem's other key announcement was about the levelisation of standing charges. What this means in practice is that prepayment meter standing charges will be permanently reduced so that they do not exceed standing charges paid by direct debit customers. Previously, people on prepayment meters, many of whom are particularly vulnerable, paid what became colloquially known as the 'PPM premium'. These were, in effect, higher standing charges that resulted in higher energy bills for those who were on prepayment meters.
The government scrapped these high charges in October 2022 as part of a temporary measure under the Energy Price Guarantee. But this government-funded support is due to come to an end in April 2024 prompting Ofgem to introduce a longer-term solution that involves the reduction of standing charges for those on prepayment meters.
The solution will see customers on prepayment meters save around £49 per year, while those paying via direct debit will pay £10 per year more. In effect, this will equalise the cost of standing charges so customers pay the same regardless of their payment method.
Ban on acquisition-only tariffs extended by a further 12 months
Ofgem will be extending the ban on acquisition-only tariffs by a further 12 months to ensure a "phased and responsible return towards normality", as competition returns to the market and customers start looking for new fixed-price energy deals.
Prior to the ban, which came into effect in April 2022, energy companies were able to offer short-term discounted tariffs to encourage customers to make the switch from other suppliers. But it was in part this practice that led to the failure of a large number of energy suppliers at the height of the energy crisis. What this means for consumers is that they won't see heavily discounted short-term energy deals on the market for the next 12 months. Ofgem has announced, however, that it intends to open a consultation to consider shortening the extension to six months.
Other competition-friendly measures introduced by the regulator include shortening the time suppliers have to move a customer over to a new supplier from 15 days to just 5 days. In addition, from 1st April, the Market Mobilisation Charge, which required suppliers to compensate new customers' previous suppliers when they switch, will end. This could result in more attractive deals from April onwards despite the extension of the ban. If you're considering switching energy suppliers and looking for lower tariffs, take a look at the best energy deals on the market right now.
Will there be further reductions in the energy price cap this year?
Current energy cap predictions suggest that there is going to be a further cut in the energy price cap in July followed by a small hike in October. The table below outlines what the actual and predicted energy cap figures are likely to look like throughout 2024. These predictions are based on data from energy analysts Cornwall Insight.
| Price cap | Rate |
| Current | £1,928 |
| April 2024 (actual) | £1,690 |
| July 2024 (predicted) | £1,465 |
| October 2024 (predicted) | £1,524 |
Predictions, of course, are just that. The uncertain geopolitical climate we're facing right now makes it difficult to predict with any certainty what energy prices will look like a few months from now.
As such, Ofgem is looking at more long-term solutions to the cost of energy crisis. Jonathan Brearley, CEO of Ofgem, added: "Longer term we need to think about what more can be done for those who simply cannot afford to pay their energy bills even as prices fall. As we return to something closer to normality we have an opportunity to reset and reframe the energy market to make sure it’s ready to protect customers if prices rise again.”
It's unclear what this will look like, but Brearley welcomed the news that the Government is planning on having more conversations on the future of price regulation, as well as looking at how standard energy deals can be made more flexible to allow customers to pay less if they use electricity when prices are lower.
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