An energy price cap designed to support the most vulnerable households on poor value default tariffs will come into force on 1 January 2019, Ofgem has confirmed today.
The energy regulator said 11 million people will benefit from the initiative that will limit how much major suppliers can charge households on standard variable tariffs - often the most expensive in the market - a year.
Announcing the date it will kick in, Ofgem said it will be capped at £1,137 per year for a typical dual fuel customer's usage - providing they pay by direct debit.
This level will then be updated in April and October every year to reflect latest wholesale energy costs which it admits has risen significantly over the past year. Ofgem says at the current rate, the a rise in the cap could be announced as early as February - a month after it goes live.
“Unfortunately, any joy that long-suffering households feel today is likely to be short-lived," explained Stephen Murray, energy expert at MoneySuperMarket.
“The cap will be reviewed again in February, when market forces look likely to dictate it will rise significantly.
“That means we could be looking at three months’ gain and then 12-18 months of long term pain for people who do nothing and let the regulator control their bills."
When the price cap comes into force, suppliers will have to cut the price of their default tariffs, namely standard variable tariffs, to the level of or below the cap, forcing them to scrap excess charges.
It estimates this will save customers who use a typical amount of gas and electricity around £76 per year on average, with a customer on the most expensive tariffs saving an average of £120.
The savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity and how they pay for their energy.
In total, the price cap will save consumers in Great Britain around £1 billion, according to Ofgem.
Households protected by the cap will be able to save even more money by shopping around for a better deal.
Dermot Nolan, chief executive of Ofgem, said: "From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity.
"The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.
"Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible."
Energy and clean growth minister Claire Perry said: "In the past few months loyal energy customers have continued to be hit by unjustified price rises on their already rip-off tariffs.
"This Government has delivered on time its promise to protect 11 million households from poor value deals this winter. Today’s final cap level brings greater fairness to energy prices and puts consumers at the heart of the energy market."
However critics warn the scheme risks lulling households into a false sense of security.
"Which? research has previously found that the cap won’t cut bills for customers on three in ten dual-fuel deals, so while the price cap will ease the financial burden for some households, people shouldn’t be lulled into a false sense of security that it will mean they are getting the best deal.
"The price cap can only be a temporary fix, what is really needed is more competition between suppliers to help drive the innovation that is so desperately required."
Who will benefit from the cap?
The cap stands at £1,137 for ‘typical usage’ and applies to those on standard variable tariffs. These are the expensive deals which you get shunted onto at the end of a fixed period, and are the ones subject to the price rises announced each year by suppliers.
In total around 11 million households are on these tariffs and so could benefit from the cap, which Ofgem has suggested will save them around £76 a year on average.
But watch out
The £1,137 cap given by Ofgem is based on a typical household's usage in kilowatts - so if you have higher usage your cap will be higher, if you have lower usage your cap will be lower.
For most people who are on standard tariffs, the energy cap is likely to reduce their bills by around 10%.
It also ONLY applies to standard tariffs and with many fixed deals in the market currently more expensive than the cap, many households could still find themselves overpaying on energy.
According to Which?, a typical energy user will spend £1,332 a year. That’s a full £195 more than the energy cap.
The best thing to do to avoid falling into this trap is to make sure you're on the cheapest possible tariff for your home and usage.
MoneySupermarket estimates there are still 89 tariffs cheaper than the cap right now.
"Customers who switch to a competitive fixed rate tariff can save £200 or more on their annual bills right now as we head into winter," Murray added.
How to switch your energy supplier
To do this you'll need:
✔ Your postcode
✔ Your current gas and electricity supplier, and the name of your tariff
✔ How much you use in kilowatt hours (kWh) on gas and electricity. You can find this on your recent bills or the annual energy statement sent by your supplier.
✔ Your bank details, if you decide to switch and wish to pay by direct debit.
Check if you have to pay any exit fees
Get in touch with your supplier to find out how long is left on your current plan. If you're looking to switch early, you might have to pay an exit fee.
Under Ofgem's rules, if you've 42 days or less until your plan expires, you can leave penalty-free.
Be aware that if you are in debt to a provider, you might not be able to move until all outstanding payments are cleared.
Likewise, if you have a prepayment meter and owe more than £500 for energy, you may be refused the chance to switch.
How to find a cheaper energy deal
Once you've cleared all of the above, it's time to start shopping around.
Energy regulator Ofgem has a list of approved and independent comparison websites that can help manage your search in an unbiased way.
Compare at least two websites to get a feel of the tariffs and a rough estimate of pricing. Remember, not all comparison websites compare the same providers (it's the same as car insurance) so shop around for quotes from as many websites and suppliers as possible.
Here are Ofgem's suggested comparison sites (Citizens Advice also has a handy guide on how to compare prices here), you can use this virtual notepad to make note of al prices quoted:
Energylinx, 0800 849 7077
uSwitch, 0800 6888 557
My Utility Genius, 0203 468 0461
Unravel It, (online only)
Switch Gas and Electric , 03333 700 600
Quotezone, (online only)
Money Supermarket, 0333 123 1983
Simply Switch, 0800 011 1395
The Energy Shop, 01259 220 270
Energy Helpline, 0800 634 3868(Video) RUSSIA - $1 TRILLION Increase in Home Energy Bills. Rampant Price INFLATION Hurts Global Economy
At the Daily Mirror, we also have our own energy switching service for a hassle free comparison - you can give it a go for free here.
Energy switching jargon buster
'Fixed' or 'capped' - The cheapest plans are those that are capped for the duration of the contract, for instance 18 months.
'Standard' or 'variable' - These tariffs are more flexible as they're contract-free. You also won’t be a charge to switch to a different supplier.
Time of use - Time of user tariffs have an on-peak and an off-peak rate for electricity. The off-peak period normally falls between 10pm and 8:30am. The on-peak rate is much higher than other tariffs so opt for this one if you plan to use your energy more overnight than during the day.
Green - A good option if you want to reduce the environmental impact of your energy use. The energy supplier matches some or all of the energy supplied to you by purchasing renewable energy such as wind or hydroelectric.
I've found a deal - what's next?
Once you've found the best deal and tariff for your household, it's time to secure it, by contacting the provider and letting them know.
Ring them up and give them the green light. They'll then start the switchover process with a 14-day cooling off period - you can cancel at any point during this time.
Your new supplier will ask for an up-to-date meter reading, they'll then hand this to your ex-supplier for your final bill (which should arrive within six weeks). If you're in credit, you'll probably receive a cheque in the post instead.
If you get the Warm Home Discount (see below for how to apply for this), make sure your new supplier also offers the scheme.
If you have a smart meter, you’ll need to check your new supplier supports smart meters before you switch.