Ofgem has announced that the energy price cap will be reduced for the last quarter of 2023. From 1st October 2023, the energy price cap will reduce to £1,923 for a typical annual household bill, bringing the average dual fuel household bill below £2,000 for the first time since April 2022. The decrease in the energy price cap is a reflection of the drop in wholesale energy prices which can now be passed onto consumers more quickly due to the quarterly price cap reviews by Ofgem.
From October 2023, those paying for their energy via a prepayment meter can also expect a reduction of £42 a year however bills are still likely to be higher than those that pay via direct debit. Ofgem says that the difference for those on prepayment meters will still be covered by the government's Energy Price Guarantee until March 2024 and it is looking at ways to bring standing charges in line with those on direct debit by April 2024.
The drop in the energy price cap comes at a time when consumers are still struggling with the cost of living crisis and recent data from the charity Citizens Advice has found that record numbers are struggling with energy debt. The research from Citizens Advice found that 7.8 million borrowed money in order to pay their energy bill in the first half of 2023 and that people who had contacted them for help had debts averaging £1,711. Worryingly 1 in 4 also claimed that energy bills were the essential bills that they most worried about.
In this article, we look at what the energy price cap is, what the reduction actually means for your energy bills and what to do if you're struggling to afford the cost of energy.
What is the energy price cap?
The energy price cap was introduced by Ofgem to control the maximum amount that energy providers are allowed to charge consumers for each unit of gas and electricity. When calculating the price cap Ofgem considers the cost of VAT, wholesale energy prices and the cost to provide energy. It then provides an annual figure based on the average dual-fuel household that pays via direct debit.
It is worth remembering however, that the energy price cap is based on the average dual-fuel household bill and how much you will actually pay will vary depending on how much energy you use.
'Typical usage' figures are changing - what does this mean?
To make matters a little more confusing, Ofgem has redefined what it considers to be 'typical usage' and so the energy price cap figures you see quoted are set to change. Every few years, Ofgem reviews what it considers to be 'typical usage' to ensure that it meets the current patterns of electricity and gas usage across the UK. The review found that energy usage patterns have changed slightly and so from October 2023, these figures will change.
Prior to October, 'typical usage' for the average household equated to 12,000 kWh of gas and 2,900 kWh of electricity. Going forward, Ofgem considers typical usage to be 11,500 kWh of gas and 2,700 kWh of electricity. So, the energy price cap, based on the new 'typical usage' figure is actually lower than the £1,923 quoted, so be mindful that the actual figure you are likely to see quoted going forward is £1,834.
| Gas (kWh) | Electricity (kWh) | Energy Price Cap from October 2023 based on 'typical usage' | |
| Old 'typical usage' figures | 12,000 | 2,900 | £1,923 |
| Revised 'typical usage' figures (From October 2023) | 11,500 | 2,700 | £1,834 |
What does the energy price cap reduction mean for your energy bills?
The reduction in Ofgem's energy price cap means that the average household bill will reduce by £151 compared to the current price cap but despite the reduction, many are unlikely to see a significant drop in their energy bills. This is because the energy price cap only caps the individual units of gas and electricity that suppliers can charge and does not affect how much energy you use at home. As a result, the more energy you use throughout the winter, the higher your energy bill will be.
Additionally, government support stopped for many earlier this year and an increase in costs such as standing charges has meant that most households are unlikely to see a significant drop in their bills. However, those most vulnerable can still expect to receive additional support through Cost of Living Support payments as well as other grants and schemes like the Warm Home Discount and Cold Weather Payment.
How much will I pay for energy under the new price cap?
The following table shows how much you can expect to pay for each unit of gas and electricity from 1st October 2023. Figures are rounded to the nearest pence and will vary depending on where you live in the UK.
| Current energy price per unit
(July - September 2023) |
New energy price per unit
(October - December 2023) |
|
| Electricity | Standing charge: £0.53
Unit price per kWh: £0.30 |
Standing charge: £0.53
Unit price per kWh: £0.27 |
| Gas | Standing charge: £0.29
Unit price per kWh: £0.08 |
Standing charge: £0.30
Unit price per kWh: £0.07 |
(Source: Ofgem)
What to do if you're struggling to afford your energy bills
If the cost of energy is becoming overwhelming there is support available to you from a number of debt organisations and charities. Additionally, your energy supplier may be able to help you arrange an affordable repayment plan so it is best to contact them as soon as possible. We provide some tips if you are struggling to afford your energy bills in our article 'How to save money on your energy bills'.
There are also a number of grants and schemes available for those who are most vulnerable. More information and help on the cost of living can be found in our Cost of Living guide.
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