Energy payments WILL fall in July however standing fees will stay excessive

Energy bills will fall by 7 per cent for millions of households from July, regulator Ofgem has confirmed. 

However, this is based on average usage and the exact amount they pay will vary.

This is everything you need to know about how energy bills will change from 1 July.

The average home paying by direct debit will see yearly gas and electricity bills drop from £1,690 to £1,568, or a fall of £122.

That is due to Ofgem cutting the rate of its price cap, which sets the standing charges and unit rates paid by households on variable-rate energy tariffs.

What does this mean for my energy bills?

The above figures assume a home is using average amounts of energy, and so many homes will end up paying more or less.

They also assume a customer is paying by monthly direct debit.

For those with prepayment meters, average price-capped yearly energy bills will be £1,522 from July, down from £1,643 now.

Meanwhile, those paying when being sent a bill will pay £1,668 from July, a fall from £1,796 currently.

How much energy you use will also change the precise level of your bill.

Standing charges are NOT going down 

The energy bill price drop is not all good news. This is because Ofgem is only cutting unit rates, not the daily standing charge.

The average electricity unit rate will be cut 9 per cent, from 24.5p per kilowatt-hour (kWh) now to 22.36p from July.

For gas, unit rates are also falling 9 per cent, from 6.04p to 5.48p.

But standing charges are almost untouched, with these fees falling from 60.12p a day to 60.1p for electricity and from 31.43p a day to 31.41p for gas.

That adds up to £334 a year from July. This is bad news for customers using little energy, because there is no way of avoiding the standing charge – whereas households can use less energy where feasible and sidestep the unit rate price.

What is the future for energy bills?

Ofgem does not speculate on the future of its price cap, but analyst Cornwall Insight’s predictions have been historically fairly accurate.

It thinks the price cap will rise to £1,636.44 in October and edge up slightly again to £1,634.20 in January 2025.

Should I consider fixing my energy bill?

For some time, the majority of households have been on suppliers’ ‘default’ standard variable tariffs, which are governed by the price cap. 

With energy bills set to rise later this year, taking out a cheaper fixed-rate deal may help you save money.

But many fixed rate energy deals are more expensive than the price cap, either now or at its predicted level later in the year.

Many fixes also come with expensive early repayment charges if a customer wants to leave the deal before its natural end point – normally 12 or 24 months.

To know if a fixed-rate deal is worth taking, you first need to know how much energy you use and the unit rates and standing charges you currently pay.

This can be found on your latest energy bill, or by logging in to your energy account online.

Armed with this information, compare what you pay now with the unit rates and standing charges on offer with any fixed rate you are offered.

If the fix is cheaper, either at the price you pay today or the price you will pay from July, it is well worth considering if energy prices do rise as predicted.

What is the Ofgem price cap?

The price cap was brought in during January 2019 to stop energy firms overcharging customers on variable-rate tariffs.

Most households had fixed-rate energy deals at the time, and only moved onto variable-rate tariffs if they did not renew at the end of their term.

Why is the price cap now so important?

After energy bills began rising in late 2021, gas and electricity companies responded by pulling all new fixed-rate deals from the market.

They did this to try to avoid the widespread collapse that affected many energy firms, which were suddenly being forced to sell power for far less than it cost them to buy it.

Because cheap fixed-rate deals had almost disappeared, almost all homes ended up on variable tariffs regulated by the Ofgem price cap.

Why are there not more fixed-rate energy deals?

Most households have variable rate deals, not fixed rates, as when energy prices began rising in late 2021 almost all energy firms began to stop offering fixes.

This came as dozens of energy providers collapsed when the rise in energy prices meant they were being forced to buy power for far more than they could charge consumers, thanks to fixed rate tariffs that locked in their customers’ prices.

Although tariffs are making a comeback, most fixed energy rates are more expensive than the price cap or for existing customers only.