Home energy bills for 11m households could tumble by up to £100 a year from this winter, following record low energy market prices during the Covid-19 lockdown, according to analysts.
The energy industry regulator is expected on Friday to announce a sharp reduction to its cap on standard dual-fuel energy tariffs, which could knock between £85 and £100 a year from the average energy bill.
Ofgem’s energy price cap, which is designed to guarantee a fair price for energy customers, is expected to fall in line with weaker wholesale market prices following record low demand for gas and electricity during Britain’s Covid-19 lockdown.
Ofgem lowered its cap on average dual-fuel energy bill by £17 ahead of the summer months – from an average of £1,179 to £1,162 – for 11m households that use a standard variable energy tariff to buy their energy.
But industry analysts believe the cap will fall significantly more for the months from October to March because energy companies have been able to buy cheaper gas and power from the market in advance of winter.
Robert Buckley, at energy consultancy Cornwall Insight, said: “We are expecting to see a significant decrease to the default price cap in Ofgem’s announcement, with a drop of potentially up to £100.”
The price cap plunge was expected following the “significant fall in wholesale prices” which were a direct result of the Covid-19 lockdown and the subsequent slump in energy demand, he added.
“For example, when the lockdown was announced on 23 March, the day-ahead power contract dropped from £30 per megawatt-hour to £10/MWh on 20 April, where it hit an all-time low,” Buckley said.
Michael Lewis, the chief executive of E.ON UK, said he expected the price cap to fall by “at least £85 from this autumn”.
“That dramatic fall in demand for energy – including oil and gas – caused wholesale energy markets to fall rapidly since the price cap was last amended at the start of this year. Because of this we expect a significantly lower level when Ofgem updates the price cap next month. Such a move also means customers should see the benefit of lower bills in time for the colder months of the year,” he said.
Britain’s wholesale electricity markets plummeted to record lows after demand for electricity collapsed by a fifth following the shutdown of restaurants, factories and office space across the country.
The shock energy demand slump led to a record coal-free streak for Britain’s electricity system, and in some cases homes were paid to use more electricity as wholesale markets turned negative.