Electricity and gas are expenses nearly all UK consumers are familiar with, but how much that use impacts monthly cash flow varies greatly from one home to the next. A recent study highlights that homes in the region average 4,000kWh per year, and one would think the cost of providing power would be fairly consistent given this metric. However, the reality is that neighbours can pay vastly different amounts for their gas and electricity bills each month, depending on which company supplies that power.
Many different energy companies exist in the UK, and each has its own pricing structure based on the power it supplies and the tariffs it uses to price out units used. This framework makes it difficult to understand if one household is unnecessarily paying more than the next. In recent months, the regulator Ofgem has provided some assistance in removing the confusion around energy supplier bills by implementing a price cap. While this move may prove beneficial to some homeowners and renters throughout the UK, it is important to understand why it may only be a temporary fix.
What is the Price Cap?
The energy price cap is a limit put in place as of 1 January 2019 to effectively force energy suppliers to maintain prices for gas and electricity at no more than the maximum. Currently, the price cap is calculated on a per unit basis, limiting suppliers from charging more than £1,137 per year. This limit is based on an average dual-fuel home for consumers who elect to pay through direct debit. Those who do not pay each month may have a lower cap in place. The average savings predicted by Ofgem is £76 per year, per home.
The cap on energy prices was set in motion to keep energy suppliers from gouging consumers with unnecessarily high utilities bills each month. However, the limit on the price of energy is set to be reviewed as early as 2019 February, with annual reviews after that. Many assume that the cap will be increased periodically, leaving households without much savings to speak of over time. Fortunately, there are alternative ways to save on energy costs that may prove more beneficial than the recently enacted price cap.
Savings through Switching
Over the last several years, consumers have become more aware of their options with energy suppliers, specifically the ability to switch to a new company that may offer savings in the process. According to a finance specialist with an energy comparison site, both renters and property owners can easily research their energy supplier options online and select the company that provides the most savings. Based on location and typical energy use, digital tools put the control of energy costs back in the hands of consumers. Switching to a new energy provider may result in far more savings than the anticipated £76 from the price cap; many could generate hundreds per year in reduced energy costs simply by making a switch.
Even though energy switching offers savings for many, not all consumers are eager to start the process. There is a sense that making a change to an energy supplier will come with delays and more hassle than it may be worth. But in reality, a switch is easy and relatively fast. Consumers need to have a recent energy bill available before heading to a comparison site – one that shows the type of energy plan they are currently on and their gas and electricity use. With this information, a fast comparison of available suppliers is generated, and consumers can select which company provides the most savings. The new supplier makes arrangements to take over, and the old sends the final bill to the renter or homeowner.
Other Ways to Save
In addition to switching energy suppliers, consumers in the UK have other tools at their disposal to save on gas and electricity costs. Reducing power generated to inactive appliances or items throughout the month can be beneficial, as can turning down or increasing the temperature during the hours no one is in the home. Insulating walls, windows and doors also creates a more energy-efficient property over time.
The recent price cap on energy suppliers is only a temporary fix for consumers, albeit a helpful one. Regardless of what Ofgem decides to do with price caps in the future, UK consumers have options to reduce their monthly bills through energy switching or other, simple strategies.