LONDON (Reuters) – Energy prices are set to fall for millions of British households from October after the energy regulator said it would lower its cap on the most widely used tariffs by about 7.5%.
A cap on electricity and gas bills came into effect in January 2019 and was aimed at ending what former British Prime Minister Theresa May called “rip-off” prices by energy firms.
The reduction, to the lowest level since the cap began, was due to a fall in wholesale gas prices since February as lockdowns on business and homes hit demand, Ofgem said.
“The COVID-19 crisis has depressed energy demand although wholesale gas prices have started to recover since hitting 20-year lows in the spring,” the regulator said in a statement.
The cap for average annual consumption on the most common tariffs, used by around 11 million households, will fall by 84 pounds ($110) to 1,042 pounds, while for some 4 million homes on pre-payment energy meters it will fall by 95 pounds to 1,070 pounds a year, Ofgem added on Friday.
Ofgem calculates the cap using a formula that includes wholesale gas prices, energy suppliers network costs and costs of government policies, such as renewable power subsidies.
Graphic – Breakdown of a British dual fuel (gas and electricity) bill% : https://fingfx.thomsonreuters.com/gfx/ce/dgkpldzzrpb/Pasted%20image%201596782287268.png
However, Ofgem warned that with wholesale prices beginning to rise the cap is likely to be increased at the next review, which comes into affect in April.
Under legislation the cap could be lifted from 2020 and no later than 2023.
Ofgem on Friday recommended it should remain in place next year, with an ultimate decision to be taken by the government by the end of October.
“Our assessments shows this is not the right time to remove the cap,” Jonathan Brearley, Ofgem’s chief executive, told reporters on a call.
He said the regulator would like to see a more competitive market, better customer engagement and more technology such as smart meters deployed before the cap is removed.
Despite the cap, Ofgem said those seeking cheaper energy prices may still find better deals by shopping around.
Breakdown of a British dual fuel (gas and electricity) bill % https://tmsnrt.rs/2Ptx1os
(Reporting by Susanna Twidale; Editing by Edmund Blair, Jason Neely and Alexander Smith)