ENERGY bills will fall by around £150 per year for a typical household from the start of October, according to a new forecast.
Ofgem’s next price cap, which will be announced next Friday, will drop to around £1,925, according to Cornwall Insight.
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It is a reduction of 7% compared to the July price cap, and the lowest it has been since March 2022.
But experts have urged caution after surveys showed the £1,925 per year figure has misled many people.
This is not a cap on the overall amount people will pay for their energy.
Instead, it caps the amount that they pay per kilowatt hour, or unit, of gas and electricity.
The £1,925 figure is calculated based on what Ofgem thinks an average household will use.
This is calculated assuming that a typical household uses 2,900 kWh of electricity and 12,000 kWh of gas across a 12-month period.
Those who use less will pay less, and those who use more will pay more.
Right now a typical household pays £2,073.98 a year under the July price cap which charges the following rates:
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- 7.51p per killowatt hour (p/kWh) for gas
- 30.11p/kWh for electricity
- A standing charge of 29.11p per day for gas
- A standing charge of 52.97p per day for electricity
But from October 1, Cornwall Insight predicts that average bills for the 29million households on variable tariffs will drop by £150 because the rates will be capped at:
- 6.93p per killowatt hour (p/kWh) for gas
- 29.96p/kWh for electricity
- A standing charge of 29p per day for gas
- A standing charge of 53p per day for electricity
Be aware that the exact unit rates and standing charges that you pay will vary slightly based on your supplier, where you live and how you pay for your gas and electricity costs.
Ofgem will announce next week (August 25) the new price cap on energy bills that will then apply from October.
What will happen to energy bills in the longer term?
Cornwall Insight’s forecast sees bills rising again slightly in the future.
In the first three months of next year analysts think that electricity prices will be 29.48p and gas will be 7.72p, adding around £150 to the average annual bill.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “While a small decrease in October’s bills is to be welcomed, we once again see energy price forecasts far above pre-crisis levels, underscoring the limitations of the price cap as a tool for supporting households with their energy bills.
“As many, including energy regulator Ofgem have acknowledged, it is essential that the Government explore alternative solutions, such as social tariffs, to ensure stability and affordability for consumers.”
He added: “Looking ahead to next year, we see how events on the other side of the globe have impacted gas prices and our subsequent price cap predictions.
“In the same way as we saw wholesale market volatility impact our cap forecasts last year, similar developments risk causing sharp changes in household bills in 2024.
“The UK’s structural reliance on gas imports means that it is highly susceptible to fluctuations in the international wholesale energy market.”
How do I calculate my bill?
To calculate how much you pay on your current fix, you will need to find out both your unit rate for gas and electricity and the standing charge for each fuel type.
The unit rate will usually be shown on your bill in p/kWh.
The standing charge is a daily charge that is paid 365 days of the year – irrespective of whether or not you use any gas or electricity.
You will then need to note down your own annual energy usage from a previous bill.
Once you have these details you can work out your gas and electricity costs separately.
Multiply your usage in kWh by the unit rate cost in p/kWh for the corresponding fuel type – this will give you your usage costs.
You’ll then need to multiply each standing charge by 365 and add this figure to the totals for your usage – this will then give you your annual costs.
Divide this figure by 12 and you’ll be able to work out how much you should expect to pay each month from July 1.
How can I lower my energy bills?
Switching to paying your energy bills by direct debit is one of the simplest ways to bring down your charges.
Customers of several firms have a choice over how their direct debits are set up:
- Fixed direct debits
- Variable direct debits
With a fixed direct debit, you’ll pay a fixed amount every month. Your energy company will work out the cost of your energy for the year ahead and divide this into equal payments.
Most energy firms will use the average amount of gas and electricity used in previous years to calculate your monthly instalments.
With a fixed direct debit you can spread the cost of your energy use without any surprises.
With a variable direct debit, you can choose to pay a varying amount every month or every quarter, depending on the energy you use.
You’ll pay for the energy you use, this means you’ll likely pay more in the winter and less in the summer.
