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UK household energy tariff cap cut by GBP426/year


Price cap falls to GBP2,074 from July

Millions still trapped in fuel poverty

Ofgem seeks to increase supplier profit

  • Author
  • Henry Edwardes-Evans
  • Editor
  • Henry Edwardes-Evans
  • Commodity
  • Electric Power Natural Gas

UK energy regulator Ofgem has announced a 37% cut to the default tariff level on domestic energy bills to GBP2,074 ($2,566) following a fall in wholesale gas and electricity prices.

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This represents a 17% (GBP426) decrease in the Energy Price Guarantee cap of GBP2,500 set by the government, and which took effect last October.

The price cap for the period July 1-Sept. 30 relates to a dual fuel household paying by direct debit based on typical consumption.

"Today's 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," Ofgem said.

Wholesale market savings were being passed on to customers more quickly than before the cap, in part thanks to Ofgem updating the cap quarterly rather than every six months, Ofgem CEO Jonathan Brearley said in an interview on BBC Radio 4.

At its peak, the price cap reached GBP4,279 (see chart) and, while the latest level was lower than last quarter, it remained well above levels seen before the energy crisis, Brearley said.

In 2022, there were an estimated 3.26 million households in fuel poverty in England, but the government has said that as many as 8.8 million households could be classed as fuel poor in 2023 using a metric where energy accounts for 10% of more of income.

The regulator noted some of last year's hike in bills came from supporting the huge raft of UK supplier failures.

As such it is now proposing to raise the profit margin component in the cap to allow "an efficient energy supplier to make a reasonable profit ...and ensure it is investable in the long term," Ofgem said.

For the October price cap, the profit margin allowance is expected to be GBP37 for the typical bill.

Under the proposed changes, the allowance would be around GBP10 higher, accounting for around 2.4% of the full price cap level.

"By contrast, supplier failures during the gas crisis cost each household an average of GBP83 and Ofgem is determined not to see a repeat of this situation," it said.

Platts, part of S&P Global Commodity Insights, assessed the price of UK month ahead baseload power at GBP75.90/MWh May 24, down 22% month on month and 50% year on year.