Households have come through Winter and things could be looking up for energy bills. The threat of power cuts failed to materialise, but many households would have felt the pinch as monthly direct debits soared to cover rising prices.

Now as we look towards Summer, the energy market and the Government’s response to the crisis is taking on a new dimension.

Ofgem price cap

The main measure to manage price stability for household energy bills has been in place for several years already – a price cap set by the energy market regulator Ofgem. It currently stands at £3,280, having taken effect from 1 April. This is down from the previous cap of £4,279. It is important to note however that bills will vary and these figures are an average used by Ofgem, and the cap actually applies to the kilowatt hours (kWh) used by a home, plus standing charges.

While it is good news that the price cap has been lowered, in practice it is still much higher than previous cap levels – thanks to high energy costs caused by excess post-pandemic demand and the conflict in Ukraine.

Energy Price Guarantee

Although it’s important to be aware of the price cap level, it is currently moot thanks to the Government’s additional Energy Price Guarantee (EPG), which was created to protect households from soaring costs last Winter.

Initially, the Government set the EPG at £2,500 per household. This was calculated like the price cap, keeping the cost per kWh lower than the market price – effectively subsidising household bills. The EPG was set to rise to £3,000 in April, but at the Spring Budget Chancellor Jeremy Hunt confirmed it would be maintained at the same initial level until June this year. The Government has also been paying a £400 rebate to all households, which should have been arriving monthly in the bill payer’s bank account over six months in payments of around £67.

Energy price outlook

The Government’s EPG is set to end in June. However, it looks increasingly likely that Ofgem will set a new price cap at this point below the EPG level anyway – rendering it effectively unnecessary. This is chiefly thanks to easing of the energy price shock and the market normalising, as it adapts to the new environment after Russia’s invasion of Ukraine.

In terms of actual prices to expect, this is subject to change, but current estimates from Cornwall Insight, an energy market analysis firm, suggest a new price cap of £2,024 in July this year, and £2,074 from October. This is of course subject to change as the market develops, but hopefully the direction of travel will continue downward for now, particularly if the global economy shows signs of weakness in the months ahead.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th April 2023.