Energy price cap: What is it and will bills continue to go down?

Households will see a significant fall in their energy bills from 1 July after a drop in the price cap, which limits how much suppliers can charge households for each unit of energy they use.

A typical household will now pay £2,074 a year on its gas and electricity bill, Ofgem has said.

It will mark the end of a government's Energy Price Guarantee which, since October, has limited the typical bill to £2,500.

In recent years, prices for variable tariff energy deals in England, Wales and Scotland have been controlled by the the energy price cap, which is now set every three months by Ofgem, the energy industry regulator.

It confirms the maximum price suppliers can charge households per unit of energy on a standard - or default - tariff in normal circumstances.

When prices soared after Russia's invasion of Ukraine, ministers said household bills would be limited by a government guarantee instead. Under this, since October, a typical household's annual gas and electricity bill has been £2,500 (even though Ofgem continued to set its own cap at a higher level).

The Energy Price Guarantee has now expired which means that,from this month, the Ofgem cap will determine households bills again.

Energy is regulated separately in Northern Ireland, where bills are slightly lower.

That is impossible to tell for certain, not least because wholesale prices are affected by global issues, such as the war in Ukraine.

However, energy consultancy Cornwall Insight predicts prices for households in England, Wales and Scotland will fall again in October, when it expects the typical annual bill to be about £2,000.

It does not expect energy prices to return to pre-Covid levels before the end of the decade at the earliest.

The government has promised to bring prepayment energy charges in line with those for direct debit customers.

This means the cap should be the same for both forms of payment.

However, those who pay via cash, cheque or bank transfer, usually every three months, will pay significantly more.

Ofgem argues these customers are more likely to fall into arrears.

The calculations for a typical household are based on a direct debit customer using 12,000 kWh (kilowatt hours) of gas and 2,900 kWh of electricity a year.

A kilowatt hour is a unit of energy used to calculate your bill.

However, most households aren't typical.

Bills are based on how much energy you actually use, which depends on the number of people, the type of property and its energy efficiency.

Lower prices should signal the resumption of competition in the market, as suppliers start to offer fixed deals to customers.

That means people will be able to switch supplier for a gas and electricity price that is set for a certain period of time. Unlike variable tariffs, they are unaffected by the cap.

Consumer groups and regulators say that could be good news for consumers, but warn that such deals will not suit all circumstances.

If variable deals continue to fall in price, anyone who locks into a fixed deal would miss out on those savings.

Anyone considering signing up for a fixed deal should also pay close attention to standing charges and exit fees, rather than just the headline rate.

Some groups across the UK who may struggle to pay bills are receiving additional help through cost-of-living payments:

Vulnerable families can also claim help through the Household Support Fund, and - from October 2023 - the Warm Home Discount scheme.

Importantly, the £400 discount which all households in England, Wales and Scotland received during the past winter has finished.

Until the end of March, businesses had their costs limited under the government's Energy Bill Relief Scheme.

Under a new scheme running until March 2024, firms get a discount on wholesale prices, rather than costs being capped.

Heavy energy-using sectors, like glass, ceramics and steelmakers, will get a larger discount than others.