Energy regulator Ofgem has announced its quarterly update to the energy price cap for the period between the 1st of July and the 30th September 2023, reducing the cap to £2,074 for a dual fuel household paying by direct debit based on typical consumption, which reflects recent falls in wholesale energy prices. However, experts suggest that moving away from relying on energy imports, and ramping up the speed at which domestic energy generation comes online, could offer greater benefits in the long-term.
The new price cap represents both a reduction in last quarter’s cap, and also a reduction in how much customers will pay on their bills. Since October 2022, consumers have been supported by the Government’s Energy Price Guarantee, which caps the typical bill at £2,500.
This latest update means that, for the first time since the global gas crisis took hold more than 18 months ago, prices are falling for customers on default tariffs. The savings can now be passed on to customers more quickly, in part due to Ofgem now updating the price cap quarterly rather than every six months.
At its peak, the price cap reached £4,279 and, whilst the latest announced level is lower than last quarter, it is still above the levels it was before the energy crisis took hold, meaning many households could still struggle to pay bills.
While the price cap has dropped from its winter peak, it remains well above the pre-2021 average, and many people will still find such high bills difficult to pay. Earlier this year, Ofgem CEO Jonathan Brearley highlighted that many households continue to struggle to afford their energy bill – therefore more focus will be needed for government, the regulator and the industry to support the most vulnerable groups this winter.
“After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction,” says Brearley. “People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.
“In the medium term, we are unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”
While the news of a reduced any price cap will be welcome for many families and businesses struggling to afford their heating and electricity, David Hall, VP of power pystems at Schneider Electric UK&I, is calling for a longer-term strategy aimed at reducing the UK’s dependence on gas imports and other external energy sources, to drive stability and sustainability.
“Energy bills will continue to increase due to rising wholesale prices and a reliance on gas imports because the UK’s energy market is intrinsically linked with Europe, which is in turn impacted by global gas prices. Gas comprises a substantial portion of electricity generation here and with import-export interconnectors in place, even without importing Russian gas, price impacts persist,” explains Hall. “The long-term strategy for the UK should involve reducing reliance on imports and prioritising the development of home-grown energy sources, such as green hydrogen, nuclear power, and renewable sources.
“This will benefit the many organisations already looking to invest in technologies, such as solar, wind, battery storage, and microgrids, to become more energy efficient and reduce their carbon footprints but they need a modern energy infrastructure to support this. Upgrading existing power networks within the next decade is crucial to ensure a future powered by renewable energy.”
Not-for-profit centre of energy expertise and market insight, Regen, agrees. Their most recent report – ‘Preparing Britain’s Electricity Network for Net Zero‘ – highlights the fact that key grid players have all set out plans and initiatives to work smarter and increase capacity. The priority now is moving from action plans to delivering reform and investment at pace, with significant investment needed to enable the grid to move away from expensive fossil generation onto low-marginal cost renewables and enable electrification of heat and transport.
According to Regen’s report, in the long term, network costs per unit of energy delivered could fall if this transition proves to be a success.
“Although this will require significant investment in grid infrastructure, it will enhance energy security and reduce dependence on external sources,” concludes Hall. “The digitalisation of electrical distribution systems will also support our transition to a cleaner energy system and ultimately avoid further upward pressure on the cost of energy for consumers and businesses alike.”