Households are set for some relief on their energy bills from April, with average prices set to fall.
Energy regulator Ofgem has set the latest price cap for April to June 2024, and it means the typical household will pay £1,690 per year for their gas and electricity supply.
The figure is down from £1,928 and means the average home paying their energy bills by direct debit will save around £20 per month.
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Ofgem is also allowing £28 to be added to everyone’s yearly bill as a one-off measure to make sure suppliers have "sufficient funds to support customers who are struggling".
It means energy prices have now reached their "lowest level" since Russia's invasion of Ukraine in February 2022, said BBC News. But even after the drop, bills remain "well above pre-pandemic levels".
Why have energy bills been rising?
A range of factors determine energy bills, "not just the gas and electricity you use", said Ofgem.
What households pay is also determined by the price of gas and electricity on the wholesale markets, the costs involved in delivering to consumers, and suppliers' other operating costs.
The cost of energy has been driven up over the past few years due to "coronavirus lockdowns, cold winters, and geopolitical issues, such as Russia's invasion of Ukraine in early 2022", said NerdWallet. That makes it more expensive for suppliers to purchase gas and electricity, which in turn is then passed on to households "by increasing their energy bills".
Consumers also pay standing charges, set by suppliers to cover the costs involved in supplying energy, such as wires and pipes. Standing charges make up around 16% of household gas and electricity costs, according to MoneyWeek.
Ofgem is consulting on reforming the charge to remove regional differences and possibly combine it with the main price cap, but this "could mean higher bills", the site added.
What has been done to help struggling households?
Most domestic energy customers benefited from a £400 government-funded discount on their bills in 2022. But support is now being focused on vulnerable households, with a £900 cost-of-living payment for people on means-tested benefits, £300 for pensioners and £150 for disabled people.
The government's energy price guarantee (EPG) also limited the impact on consumers after gas and electricity prices soared in the wake of Russia's invasion of Ukraine. But the EPG effectively ended in July 2022, when Ofgem's energy price cap fell to £2,074. This is below the EPG, and households pay the lower of the two.
Some households may also be considering signing up for fixed tariffs, which can provide certainty and have traditionally been competitive. These deals largely disappeared from the market amid the spikes in costs over the past couple of years, but are now being offered by "a few" energy companies, said Which?, including British Gas and EDF.
The "handful" of decent tariffs now available are usually only offered to existing customers, said MoneySavingExpert, and a "fix that looks decent now could end up costing you more over the next year if energy prices drop". But if you can find a deal worth 5% below the price cap then it "could be worth" fixing, added the site, which has a 'Should you fix?' calculator to help consumers who are weighing up their options.
Will energy prices come down further?
After reaching record highs in 2022, wholesale gas and electricity prices fell in 2023 driven, in part, by a drop in the UK's demand for gas, said the Financial Times. The paper said that "strong wind speeds and high levels of imports from continental Europe" cut the amount of gas used for electricity generation.
Traders are also becoming confident in the ability to refill gas storage sites across Europe, despite lower Russian exports.
The latest drop has been helped by a "mild winter", said Sky News, while natural gas costs over the peak winter season fell across Europe "due to higher stockpiles".
The price cap doesn't necessarily mean your bills will drop as the rates that can be charged for each unit of electricity are capped. So "those who use more energy pay more", said The Guardian.
The next price cap will be set for July to September when typical bills are expected to drop again before they usually rise in the winter.
Energy analyst Cornwall Insight expects the price cap to drop to £1,462 in July and to increase to £1,521 in October.
While prices are lower, they still remain hundreds of pounds above what customers were paying at the start of the decade, said Dr Craig Lowrey, principal consultant at Cornwall Insight "with little to indicate that will be changing any time soon".
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