LONDON (Reuters) – Energy bills are set to fall for millions of households in Britain this winter after the country’s energy regulator told suppliers to reduce bills by 6% from Oct. 1, following a drop in wholesale gas and power prices this year.
FILE PHOTO: The sun rises behind electricity pylons near Chester, northern England October 24, 2011. REUTERS/Phil Noble/File Photo
The regulator, Ofgem, said the price cap for average annual consumption will fall by 75 pounds to 1,179 pounds from Oct. 1. In April the cap was raised by more than 10% to 1,254 pounds.
“Wholesale energy prices have significantly fallen between February and June 2019. A combination of low demand during the winter, strong gas supply and relatively healthy storage levels have pushed down wholesale prices,” Ofgem said here in a statement.
Wholesale UK gas and power prices have lost around half their value since last September.
Ofgem was tasked with taking action by parliament last year after lawmakers said customers were being overcharged for electricity and gas.
The price cap applies to the so-called standard variable tariff (SVT), the most popular type of rate offered by the big six, as well as to other default deals, and is intended to be a temporary measure lasting until 2023 at the latest.
Around 11 million customers are on SVTs.
The regulator reviews the cap each April and October and can adjust it according to changing costs such as wholesale energy prices.
It is calculated using a formula that includes wholesale gas prices, energy suppliers network costs and costs of government policies, such as renewable power subsidies.
Ofgem said the wholesale energy cost part of the cap fell by 75 pounds to 446 pounds and other costs, such as VAT and supplier profits, fell slightly.
“These reductions offset cost increases totalling 7 pounds of other elements such as operating costs, network charges and environmental schemes, resulting in an overall reduction of £75 in the level of the default tariff cap,” Ofgem added.
“As we predicted, the overall downward trend in the wholesale markets since the start of February means customers on standard variable tariffs will benefit from a fairly significant reduction in bills from 1st October,” E.ON UK Chief Executive Michael Lewis said.
“We’ll be writing to our customers in the coming weeks to make them aware of this change and how it benefits them,” he added.
Reporting by Nina Chestney and Noor Zainab Hussain in Bengaluru; editing by Jason Neely