As gas and electricity prices rise by 10% in England, Scotland, and Wales from October, many households are feeling the pressure.
With the new energy price cap in place, the typical annual dual-fuel bill will increase to £1,717, leaving many wondering how to manage the rising costs. Adding to the strain, the government has announced that from winter 2024, winter fuel payments will become means-tested, impacting millions of pensioners who previously benefited from the payment. In this context, it’s crucial to understand how the energy price cap works and explore practical ways to keep energy costs manageable.
How is the Energy Price Cap Determined?
The energy price cap, set quarterly by Ofgem, limits the maximum price energy companies can charge per unit of energy for households on default tariffs. Several factors influence this cap, including wholesale energy costs, supplier expenses, and standing charges. Wholesale costs, which fluctuate based on global energy prices, are passed down to consumers, while supplier costs reflect operational expenses and a profit margin.
Standing charges, the fixed daily costs that cover connecting homes to the energy supply, remain unchanged despite rising overall costs. At around 60p per day for electricity and 31p for gas, these charges disproportionately affect households that use less energy, leaving many low-energy users still facing high bills.
Economic Implications of Winter Fuel Payments
Previously, winter fuel payments were given to all pensioners, offering between £100 and£300 depending on circumstances. From winter 2024, however, only pensioners who receive means-tested benefits will be eligible for the payments, adding more financial burden on low-income households during the colder months.
Practical Ways to Manage Energy Costs
While the energy price cap offers some protection from extreme price hikes, there are several practical steps households can take to reduce energy consumption:
- Energy Efficiency: Invest in energy-efficient appliances, insulate your home, and seal windows to prevent heat loss. Using smart meters and thermostats can help monitor and reduce energy consumption.
- Shift Energy Usage to Off-Peak Hours: Consider using energy-intensive appliances like washing machines during off-peak hours when energy prices are typically lower.
- Switching Suppliers: Regularly compare energy tariffs to find the best deals. Fixed-price tariffs can offer certainty, although it’s essential to weigh the risk of being locked into higher rates.
- Prepayment Meters: Households on prepayment meters will see slightly lower bills than those on direct debit. However, monitoring energy use and considering a switch to direct debit could save even more.