What the Vitality Value Cap change means for power payments

The Vitality Value Cap is the utmost quantity power suppliers can cost you for every unit of power you utilize. It’s up to date each three months by power regulator Ofgem, to make it possible for costs mirror adjustments in underlying power prices in addition to inflation.

The cap was lowered from July to September, limiting the common invoice for a typical family utilizing gasoline and electrical energy (and paying by direct debit) to £2,074 12 months, or about £173 a month. Wholesale power costs have now fallen additional, so Ofgem has introduced one other drop from October to December, decreasing the cap by round 7% to £1,923 a 12 months, or about £160 a month.

However that is the common a ‘typical’ family can pay. Ofgem estimates a typical or ‘medium-use family’ as these residing in a 2-3 bed room home with 2 or 3 individuals.  The quantity you pay will rely upon how a lot power you utilize, and the place you reside, in addition to the way you pay your power payments.

The cap stays so much larger than the common family invoice was earlier than the power disaster started in 2021 and Ofgem says the market stays ‘unstable’.

So will the discount to the worth cap make an enormous distinction to your family payments, and can costs maintain taking place? We take a better look.

What’s the Vitality Value Cap — and the way is it totally different to the Vitality Value Assure?

In 2019, the federal government launched the Vitality Value Cap in response to rising wholesale power prices. It units a most worth that power suppliers can cost.

However since October 2022, the annual power invoice for a typical family utilizing gasoline and electrical energy (paying by direct debit) has been restricted to £2,500 by the Vitality Value Assure (EPG). This extra momentary measure was first put in place by the federal government as a result of the Vitality Value Cap was so excessive. From January to March this 12 months, the cap peaked at £4,279, however the EPG protected households from the rise.

The Vitality Value Assure went again as much as £3,000 from July, nevertheless it’s not at the moment wanted as a result of since July the Vitality Value Cap has been decrease. See beneath.

Apr-Jun Jul-Sep Oct-Dec
Vitality Value Cap £3,280 £2,074 £1,923
Typical family power invoice beneath the Vitality Value Assure £2,500 £3,000 (However a ‘typical’ family pays £2,074 because the Vitality Value Cap is decrease) £3,000 (However a ‘typical’ family pays £1,923 because the Vitality Value Cap is decrease)

* Figures are for typical home consumption paying by direct debit and can range primarily based on precise family utilization.

READ MORE: What’s the distinction between the Vitality Value Cap and the Vitality Value Assure?

Is there nonetheless a reduction on power payments?

From October 2022 till March this 12 months, all households got a reduction of £400 off power payments as a part of the federal government’s Vitality Payments Assist Scheme. This labored out as a credit score of £66 to electrical energy payments in October and November, and £67 in December, January, February and March.

This scheme has now ended, so while you’re understanding how a lot your payments might be in comparison with final 12 months, it’s good to remember that these month-to-month reductions gained’t be utilized this winter except the federal government pronounces an identical scheme.

Does the Vitality Value Cap have an effect on me?

When you’re on a set tariff in your power provide, then you definately gained’t be affected by the worth cap.

The Vitality Value Cap is utilized in the event you’re on a default power, or customary variable, tariff. This consists of those that pay by direct debit, customary credit score, prepayment meter, or who’ve an Financial system 7 (E7) meter.

When you have a pre-payment meter, the Vitality Value Assure (EPG) now ensures that prices are extra aligned with direct debit customers. From 1 October 2023, there might be a change in how the low cost is paid. As an alternative of being delivered as a reduction to unit charges, there might be a reduction utilized to the standing cost.

When you pay by direct debit, your power payments are normally primarily based on an estimate of how a lot you utilize. So in the event you’re in credit score, it’s price doing a meter studying and getting in contact together with your provider to verify you’re nonetheless paying the correct quantity.

Vitality Value Cap by cost sort: October to December 2023

Direct Debit Prepayment Normal Credit score Financial system 7*
July – Sept 2023 cap £2,074 £2,077 £2,211 £1,400
Oct – Dec 2023 cap £1,923 £1,949 £2,052 £1,298

Supply: Ofgem. *Electrical energy-only Direct Debit

READ MORE: Learn how the Vitality Value Cap is about

How will the worth cap change affect my power payments?

The Vitality Value Cap is about at £1,923 a 12 months, or about £160 a month, from October to December. However that is simply an estimate for a typical, or ‘medium-use family’. And it’s not a cap in your complete invoice, however as a substitute limits what suppliers can cost you per unit of power used.

You possibly can verify the common price charged per unit of power used beneath, and examine that together with your family power payments to work out an estimate of your family’s power utilization.

Vitality Value Cap: What’s the common price charged per unit of power used?

Apr-Jun 2023 Jul-Sep 2023 Oct-Dec 2023
Gasoline 10p per kWh 8p per kWh 7p per kWh
Electrical energy 33p per KWh 30p per kWh 27p per kWh

Supply: Ofgem. Based mostly on common charges for direct debit customers, which range by area

Ofgem estimates a typical or ‘medium-use family’ as a two- to three-bedroom home with 2 or 3 individuals residing in it.

When you dwell in a flat, or a one-bedroom home, your power use is estimated to be ‘low’. And in the event you dwell in a four-bedroom dwelling, with 4-5 individuals, your power use is estimated to be ‘excessive’. See beneath.

Vitality use Instance – dimension of dwelling & variety of residents Typical annual gasoline use Typical annual electrical energy use
Low Flat or 1-bed home; 1-2 individuals 8,000 kWh 1,800 kWh
Medium 2-3 mattress home; 2-3 individuals 12,000 kWh 2,900 kWh
Excessive 4+ mattress dwelling, 4-5 individuals 17,000 kWh 4,300 kWh
Supply: Ofgem

Supply: Ofgem

You’ll find out what the totally different charges and standing prices might be from 1st October 2023 in your area here.

How a lot you’ll pay additionally relies on how energy-efficient your property is, and which home equipment you utilize – and the way typically you utilize them.

Vitality utilization is calculated in kilowatt (kWh) hours, or items. One kWh is sufficient to energy a 100-watt lightbulb for 10 hours, however as compared, it takes 4.5 kWhs to energy a single cycle of a tumble dryer.

Will there be a change to the standing cost on my invoice?

The fastened standing cost you pay is simply to have a connection, no matter how a lot power you utilize. The quantity you’ll pay relies on your provider, what tariff you’re on, and the place you reside. The typical each day standing cost for electrical energy is 53p a day, and 30p a day for gasoline. That works out at simply over £300 a 12 months on common.

You’ll find out what the totally different charges and standing prices might be from 1st October 2023 in your area here.

Will power prices proceed to fall?

The Vitality Value Cap covers a interval of three months and adjustments 4 occasions a 12 months: in January, April, July and October.

Analysts at Cornwall Insight, an impartial power analysis, analytics and consulting agency, forecast power prices to rise once more from January 2024.

Their forecast reveals a rise to the worth cap of 6% to £2,033 from January to March, earlier than dropping again to £1,964 (-3%) from April to June 2024, and £1,917 (-2%) from July to September 2024.

What different authorities assist is there for power payments?

There are a number of the government-funded schemes in England, Scotland and Wales to assist with power payments. When you dwell in Northern Eire, you will discover extra data here.

One of many schemes that gives assist through the winter months is the Warm Home Discount Scheme. Below earlier schemes, in the event you get advantages, or in the event you or your accomplice get the Assure Credit score aspect of Pension Credit score, you possibly can get a reduction of £150 off electrical energy invoice in winter, or £150 added to your prepayment meter. Or you possibly can additionally get a reduction in your gasoline invoice as a substitute in case your provider gives each gasoline and electrical energy. The scheme reopens in October 2023 and extra particulars might be supplied within the coming months.

READ MORE: What’s the distinction between the Vitality Value Cap and the Vitality Value Assure?