On the 1st January, the government energy regulator, Ofgem, are introducing an energy price cap for customers on expensive tariffs. It sounded good on the surface…
But when suppliers are forced to lower the cost for those paying more than the price cap, they plan on raising prices for those below it to subsidise the cost.
What is the price cap?
The price cap is a limit on supplier rate charges for prepayment, standard variable and default tariffs.
The average level of the price cap depends on where you live because the costs of supplying energy vary in each region.
It starts on the 1st January and will be updated every April and October. Ofgem say the price cap was only ‘designed to be a temporary measure, and will be in place until 2023 at the latest’.
At the same time wholesale costs of energy are rising therefore it’s likely Ofgem will raise the price cap to reflect this in April. Lily, our head of research, was recently quoted in the mirror explaining that ‘the price cap at the proposed level will have to rise by £76 or even more at some point soon next year.’
Who is the price cap for?
The price cap is for people who are on a prepayment, standard variable tariff or default tariff.
Ofgem state that most people are on the standard default tariff, which is usually the most expensive.
People are likely on this tariff because they haven’t switched in the last couple of years or they’ve never switched at all!
Even people who have switched are usually automatically put back on these expensive tariffs when their deal ends… so you can see how easy it is to end up on the worst tariff!
Will the price cap put a limit on how much I pay?
No. The price cap is a limit on the rates that suppliers use to charge you. It’s important to know the price cap does not mean your bill cost will be capped, that’s calculated by your energy usage too.
Supplier charge rate + energy usage = how much you pay
Will the price cap save me money?
Using the example of a typical customer, who has dual fuel, medium usage, and pays direct debit. The price cap means they would pay a maximum of £1,137, but…
If they switched to the cheapest deal on the market they would save a further £259!
Alan Whitehead, the shadow energy minister, has also warned that higher bills for some customers could be a “perverse outcome” of the cap.
For those paying more than the cap – your prices will decrease.
But for those paying less than the cap – your prices could increase.
Either way, default standard tariffs are still the most expensive and there are much cheaper deals on the market.
Even the energy regulator, Ofgem, has suggested that you ‘should shop around for a better energy deal’. This is because even with the cap, they too know there will be cheaper deals.
How do I switch energy supplier?
This is where we can help.
Look After My Bills does the shopping around for you… every year… so you save money automatically!
We’re an energy switching company and we know automatic switching is the simplest way to save money on your energy every year.
We use clever algorithms to find you the best deal on the market according to your usage and energy meter type.
Want to find out more about Auto-switching? Check out our blog here!