To help us provide you with free impartial advice, we may earn a commission if you buy through links on our site. Learn more

Millions of homes could soon be better off under plans to lower the energy price cap

The changes come into effect in October and could cause annual bills of 11 million homes to drop by by 6%

Homes across the UK could see their energy bills drop as part of plans to lower the energy price cap.

As part of its latest review, industry regulator Ofgem is expected to announce it is lowering the cap on energy bills in response to cheaper market prices.

The changes, which come into effect in October, are set to impact 11 million homes and could cause annual bills to drop by as much as 6%, or £80.

Energy price caps were brought in by the Conservatives to protect customers being ripped-off by energy suppliers. In particular, they limit how much suppliers can charge you per unit of energy and are based on how much Ofgem believes it costs these suppliers to power your homes.

This price cap protects you if you use a prepayment meter, get the government’s Warm Home Discount and/or are on a ‘standard variable’ energy, or a default tariff. It does not protect people on fixed-term energy tariffs, however, because these tariffs typically offer good value. If costs to supply energy drop, Ofgem’s price caps make sure suppliers pass on these savings.

If costs go up, as they did at the start of the year, the caps ensure any price rises made by suppliers to cover these costs “are justified and you cannot be overcharged.”

Ofgem updates the caps twice a year, in February and August, and changes come into effect in April and October. The price cap was set initially at £1,136 but it was increased by 9.3% in April to £1,242. This was in response to wholesale costs rising by £72 over the period from October to March, as well as network costs rising by £13.

In the six months since the last review, and three months since the last price change, wholesale prices are believed to have dropped and this saving is expected to be passed on.

It should be noted that savings may not be applied straightaway. If you pay by direct debit, for instance, it may take time for your supplier to make the changes.

Read more