This November, Ofgem announced the initial levels for the energy tariff price cap that will come into effect from January 2019. Legislation to introduce the price cap was introduced by the Government, following concerns that many people, particularly those who did not switch suppliers, were paying too much for their energy. The cap will force energy suppliers to cut the price of their tariffs if they are above the levels stipulated by the regulator.
Ofgem has set the final level of the price cap at £1,137 per year for a typical dual fuel customer paying by direct debit. When the price cap comes into force suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap.
Ofgem estimates that the cap will save customers, who use a typical amount of gas and electricity, around £76 per year on average, with some customers on the most expensive tariffs saving an estimated £120.
Ofgem tells us that the level of the price cap will be reviewed twice a year, in April and October to ensure that it tracks wholesale fuel prices. So the price tariff may be good news today for customers, at least those who haven’t switched, but it’s still hard to know where energy prices will go in the future. Some people believe the long-term effect of the price cap may be higher, not lower, prices.
The energy saving opportunity
That’s why it’s important that – as well as a price cap – the government should do more to help home owners make energy efficiency improvements. Reducing the demand for energy is the one sure way to reduce energy bills in the long term.
For example, replacing an old D rated boiler, with a modern A rated condensing boiler saves £55 – £180 a year in energy bills. People living with the least-efficient, G rated boilers, could save even more – up to £305 a year in a detached house. Installing and correctly using a programmer, thermostatic radiator valves and a room thermostat, saves around £75 a year in a typical three-bed gas-heated semi.
Effective insulation to avoid losing heat through ill-fitting windows, doors or loft spaces means homes stay warmer, longer and reduces the demand on heating systems. There’s still a large potential for wall insulation in UK homes: cavity wall insulation saves a typical home owner about £150 a year. Draught-proofing could save a further £20 per year.
All savings will vary according to the size of properties and the level of home energy-efficiency measures already in place, but it’s clear that reducing the demand for energy is the one sure way to reduce energy bills.
There is progress: we were pleased that this week the government finalised regulations that require landlords of the coldest rented homes to invest £3,500 in improvements. But there’s much more needed – particularly to help home owners on low incomes afford the upfront costs of a new boiler or insulation. In the long term the benefits could far outweigh the impact of a cost-cap.