Ofgem announced on Monday 27 February 2023 its quarterly update to the energy price cap for the period 1 April to 30 June 2023, setting it at an annual level of £3,280 for a dual fuel household paying by direct debit on typical consumption1. That is a reduction of almost £1,000 from the current level of £4,279, which Ofgem attributes to recent falls in wholesale energy prices1. The £3,280 figure indicates what consumers on their supplier's basic tariff would pay if the government's Energy Price Guarantee (EPG) were not in place1.
The cap is not what most households pay. From 1 April the government has set the EPG at £3,000 for the typical bill, meaning consumers will not pay the full level of the price cap1. Ofgem's letter to market participants states the EPG is expected to increase from £2,500 to £3,000 for a typical dual fuel direct debit domestic consumer and will be extended until April 20242. Which? reports the new cap limit is down £999 from the current level, and that bills for a typical household are currently around £2,500 under the EPG3. Ofgem's chief executive said bills would rise again in April on current policy1.
The cap level varies by payment method. Ofgem's figures for cap period 10a, covering 1 April to 30 June 2023, are:
| Payment method | Period 9b (Jan to Mar 2023) | Period 10a (Apr to Jun 2023) |
|---|---|---|
| Direct debit | £3,549 | £3,280 |
| Standard credit | £3,764 | £3,482 |
| Prepayment | £3,608 | £3,325 |
| Economy 7 (direct debit, 4,200 kWh) | £2,988 | £2,282 |
Source: Ofgem2. The press release gives the standard credit cap as falling by £1,051 from £4,533 to £3,482, and the prepayment cap as falling by £1,034 from £4,358 to £3,3251. The two Ofgem documents give different starting figures for period 9b; the letter's annex states £3,764 for standard credit and £3,608 for prepayment2, while the press release states £4,533 and £4,3581.
Ofgem's letter sets out the main drivers: the wholesale cost allowance fell from £3,137 to £2,170, a decrease of £967 or 31%, while network costs rose from £372 to £388 and policy costs from £152 to £1652. It notes wholesale gas and power prices are still two to three times their historic average levels2. From 1 April the equivalent per unit level for a typical direct debit customer will be 51p per kWh of electricity with a 53p daily standing charge, and 13p per kWh of gas with a 29p daily standing charge1.
"Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning."
Why it matters for households
The cap is a limit on unit rates and standing charges, not on total bills, so what a home pays depends on how much energy it uses, where it lives and how it pays1. The gap between the cap and the EPG means the headline reduction does not translate into lower payments from April: the guarantee is set above the cap, so the guarantee determines what households pay1. Which? reports consumer groups calling for the EPG change to be postponed, and cites Cornwall Insight estimating bills could increase by around 20%, or £500 per year3. Ofgem states there is no immediate action for consumers to take as a result of the announcement1. For a household's energy independence, the figures show the cost of a unit of gas and electricity remains well above pre-crisis levels even as the cap falls, and the level of support is set by government rather than by the regulator1.
What happens next
Ofgem says the next quarterly price cap update will be on 25 May 20231. One report gives the date as 26 May 20234. EPG discount rates from 1 April 2023 will shortly be published by the Department for Energy Security and Net Zero2. The exact unit rates under the new EPG had not been revealed at the time of publication3.
Sources4 cited
- Ofgem announces latest quarterly price cap update | Ofgem, ofgem.gov.uk
- Default Tariff Cap update, ofgem.gov.uk
- Energy price cap falls, but your bills are still set to rise - Which?, which.co.uk
- Energy Price Cap Update February 2023, flexi-orb.com