Energy Price Cap Falls: Why You Should Keep Paying More This Summer

Brace yourselves, folks! As of 1 July, the energy price cap is falling by a whopping 7%, bringing our energy bills to the lowest level in two years. Under Ofgem’s new cap, the average household will pay ￡1,568 yearly. Before you pop the champagne, hold on – experts predict the cap will rise again in October. So, here’s a hot tip: keep paying a bit more during the summer months.

The Current Situation

Let’s be real – a 7% reduction is a win in the energy bill Olympics, but it’s not exactly gold medal material. We’re still paying around 40% more than we were before the whole gas crisis saga began. So, while you might be tempted to splurge on that extra takeaway, it’s worth thinking twice.

The Simple Historical Context and the Current Energy Landscape

Remember 2021? It feels like a decade ago, but that’s when gas prices started their steep climb. Post-pandemic demand soared, supply couldn't keep up, and voila – prices skyrocketed. Just when we thought it couldn't get worse, 2022 hit us with Russia’s invasion of Ukraine, cutting off Europe’s largest gas supply and leaving us scrambling for alternatives from the US and the Middle East. It's been a wild ride, to say the least.

What Might Happen Next – Predictions…

Don’t get too comfortable with the current price drop. According to those clever folks at Cornwall Insight (the company that Martin Lewis listens to), rising wholesale prices are set to push the cap back up to ￡1,723 in October. Yes, you read that right – higher than your pre-crisis ￡1,150 per year. Simon Cran-McGreehin from the Energy and Climate Intelligence Unit (ECIU) has been crunching the numbers, and it’s not pretty. Our dependency on gas has cost bill payers ￡2,000 during the crisis and the economy tens of billions of pounds. Ouch!

The Impact on Us - The Householders

If your home has the energy efficiency of a sieve, brace yourself. Heating a home rated E for gas and power will cost about ￡2,060 over 12 months when prices rise again in October – that’s ￡300 more than your neighbour’s moderately inefficient house. Got an F rating? Get the jumpers and thermals out, you’re looking at a cool ￡2,250.

Long-term Solutions

Mr. Cran-McGreehin suggests we invest in insulating homes, switch to electric heat pumps, and fast-track British renewables. Sounds like a plan, right? Anything to avoid being at the mercy of international gas markets. Plus, a snug home with a heat pump? Sign us up!? Seriously though, any insulation that you can put in your home the better.? If you don’t own your home – ask your landlord to help you to keep your bills down.

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The Price Cap – What is it for?

For those who like to keep track, the energy price cap was introduced in January 2019. It limits the amount that a supplier can charge for their default tariff.? It includes the Standing Charge too – this is the amount you have to pay no matter how much energy you use.? Ofgem reviews and adjusts this cap regularly, affecting 28 million households. The price cap affects the UK only and not Northern Ireland.

Rates also vary by region – who knew?

Remember – the cap does specify how much you pay.? It limits the standing charge and unit rates.? Also, paying by direct debit generally gets you the best deal.? Paying each month after receiving your bill – you are typically paying 6% more!

Making Smart Choices

Wondering whether to switch energy suppliers? Emily Seymour from Which? has some advice: compare your current payments to any fixed deals available. If you’re thinking of fixing, aim for deals close to the July price cap, no longer than 12 months, and without hefty exit fees. Seems like a reasonable game plan.

Being Super Clever: Locking in a Deal

Here’s where you can really flex your financial savvy. Lock in a 12-month deal at the July price cap but keep paying the same amount you were before the reduction. What’s the magic here? By continuing to pay the higher amount, you’re building up a nice little pot to cushion the blow when prices rise again in October. It's like setting up your own energy rainy day fund – genius, right?

Why Pay More Now?

Here’s the kicker: paying a bit more now during the summer can cushion the blow when Winter hits – not just when October’s hike hits. It helps avoid getting into arrears over the winter – let alone cushion price hikes.

So There You Have It…

The 7% reduction in the energy price cap from 1 July is a small victory in a long battle. But with another price hike looming in October, keeping your payments steady this summer might save you some headaches down the line. And while we’re at it, let’s look into those energy efficiency measures and renewable energy options. After all, who doesn’t want a future where our energy bills don’t make us wince every month?

?Stay savvy, keep your payments steady, and enjoy a more secure financial future. Cheers to a smarter approach to managing our energy costs!

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Thanks for reading

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