Gap between cheapest energy deals and price cap shrinks from nearly £300 to a measly £11 in a YEAR as rising wholesale prices drive up bills
- There was just a £11 gap between cheapest deals and the price cap last month
- A year ago, that gap was 25 times bigger at £291
- As of this month, the lowest price energy deals are higher than Ofgem’s cap
- Cap expected to rise by another £300 when it is reviewed in April next year
The difference between the ten cheapest energy tariffs, many of which are fixed, and the current price cap was just £11 a year as of September 2021, new research has revealed.
This is a massive change compared to September 2020, when the average difference between the best deals and the price cap limit in was £291 a year, according to data from analysts Cornwall Insight.
Today’s gap is more than 25 times less than it was this time last year.
Cornwall Insight said this is the lowest level this gap has fallen to since the introduction of the price cap in January 2019.
The cheapest energy tariffs on the market are now more expensive than Ofgem’s price cap
The majority of the cheapest tariffs will be fixed deals, which are not under the price cap rules and typically the lowest price offerings.
However, the situation is likely to worsen as the ‘cheapest’ tariffs are now actually becoming more expensive than the price cap, which now sits at £1,277.
This is due to the ongoing industry crisis, as wholesale prices continue to rise, affecting both suppliers and consumers.
In September, Ofgem’s price cap stood at £1,138 whilst it has since risen by £139 for 11million customers on their suppliers’ default tariff.
Prices have increased for consumers at the same time a large number of suppliers have gone bust as they can no longer pay the increased cost for wholesale gas.
As a result, the cheapest tariff available on the market has now remained above £1,000 per year for the last six weeks.
This is a big difference comapred to earlier in the year when prices were much lower.
For example, the cheapest ten tariffs on the market in April averaged £906 a year for a typical dual fuel user, while the equivalent figure stands at £1,127 a year as of 27 September – an increase of 24.3 per cent.
Rather than improving, it is thought tariffs are likely to get even more costly with the price cap expected to rise by around a further £300 when it is reviewed and altered in April next year.
The reduction in potential savings for customers has led to a big decrease in consumers switching suppliers.
In fact, Electralink’s latest switching statistics found that 399,000 customers changed supplier in August 2021, a 24.7 per cent decrease on August 2019 and the lowest figures seen in August since 2016.
The cheapest tariff available has now remained above £1,000 per year for the last six weeks
James Mabey, analyst at Cornwall Insight, said: ‘The record-high wholesale prices and the resulting energy crisis has no doubt taken its toll on the energy tariffs available to customers, with domestic tariffs seeing substantial price increases over the summer months.
‘Usually, a rise in the default tariff cap by Ofgem would widen the gap between the cap and the lowest deals making switching more worthwhile.
‘However, with wholesale prices remaining well above typical levels, it is not clear the savings gap will reopen. This is compounded by the fact that many tariffs have been removed from the market.
‘The drastic reduction in the number of tariffs available, along with a handful of suppliers stopping customer onboarding completely, suggests the domestic switching landscape will retain a low level of switching until the gap between delivered costs falls below the price cap once more.
‘This will either be when the price cap is amended in April next year or the current highs in the wholesale market abate.’