The new Ofgem energy price cap was announced on Thursday 23 November, with a rise of 5% to £1,928. Here’s a quick guide to how the energy bills cap works and what to expect in 2024.
The UK is now two years into its worst energy crisis in a generation. Gas and electricity bills have rocketed, and will rise again in January 2024. You can find out what it all means for you in our energy comparison guide, which includes the latest fixed deals.
While the Ofgem energy price cap dropped at the start of October, millions of households are still set for a tough winter. Without the £400 Government support we all got last year, many will be paying more for their energy. See help with gas and electricity bills to find out what support’s out there if you’re struggling.
So, what is the Ofgem energy price cap and why does it matter when it comes to your energy bill?
What is the energy price cap?
The energy price cap sets the maximum unit rates suppliers can charge those on standard variable tariffs (essentially all those not on a fix) for energy and standing charges. Apart from when the government’s energy price guarantee was in place, it’s been the de facto rate most households have paid over the last 18 months or so.
It’s important to remember that the eventual size of your bill will be determined by the amount of energy you use, as it is the unit rates and standing charges that are capped.
The energy regulator calculates and implements a new price cap every three months to take account of changes to wholesale prices and the cost of supplying electricity to homes.
How much is the Ofgem energy price cap?
The current rate of the energy price cap is £1,834 a year for a dual-fuel household paying by direct debit. And it’ll rise to £1,928 on 1 January 2024. This is based on Ofgem’s new lower typical usage figures (2,700 kWh for electricity and 11,500kWh for gas).
This is an average figure and varies by region. Your actual bill may be higher or lower depending on the amount of energy you use.
The current cap kicked in on 1 October and will run until 31 December 2023. The newly announced price cap will run until March, when it’s hoped prices will go down.
These are the rates the average household will pay, depending on the type of meter they have and how they pay for their energy:
*The Government is part-subsidising the price cap rates for prepayment meter customers under the Energy Price Guarantee until March 2024. It means the actual annual figure is either equivalent to, or lower than, the rate paid by direct debit customers
What are the unit rates (kWh) and standing charges for energy?
The unit rates of gas and electricity are capped by the Ofgem limit. The amount you’re charged per kilowatt hour (kWh) can vary depending on where you live, your, payment method and meter type (as shown in the table above).
Meanwhile, the standing charge covers the cost of supplying your property with gas and electricity. It is a fixed daily amount you have to pay, regardless of how much energy you use. It’s even applied to properties that are empty. This system is highly controversial given it can penalise low income households. Ofgem has launched a consultation on standing charges that you can take part in.
Here’s how unit rates and standing charges look under the existing price cap, and how they will change from 1 January 2024:
|Energy price cap rates from 1 October to 31 December 2023||New energy price cap rates from 1 January to 31 March 2023|
|Gas||Unit rate: 6.89p per kWh. Standing charge: 29.62p per day||Unit rate: 7.42p per kilowatt hour (kWh). Standing charge: 29.60p per day|
|Electricity||Unit rate: 27.35p per kWh. Standing charge: 53.37p per day||Unit rate: 28.62p per kWh. Standing charge: 53.35p per day|
When are the Ofgem price cap assessment periods?
The unit rates we’ve listed above are largely based on wholesale prices. They are calculated by looking at these prices over an assessment period of roughly three months. This table shows when these periods run and when each new Ofgem price cap gets announced:
|Ofgem energy price cap dates||Price cap announcement date||Wholesale prices assessment period|
|1 October to 31 December 2023 (current cap)||25 August 2023||19 May to 17 August 2023|
|1 January to 31 March 2024||23 November 2023||18 August to 15 November 2023|
|1 April to 30 June 2024||23 February 2024||16 November 2023 to 15 February 2024|
|1 July to 30 September 2024||28 May 2024||16 February to 16 May 2024|
|1 October to 31 December 2024||27 August 2024||17 May to 16 August 2024|
What will happen to the Ofgem energy price cap in 2024?
Up until fairly recently, it had been expected that energy prices would remain close to, if not below, their current levels in 2024. There were even fixed-rate deals below the October to December level of Ofgem’s price cap.
But, with wholesale prices rising in light of the Gaza conflict, the picture has become less clear and energy deals that were competitive with the price cap have largely disappeared. See our energy comparison guide to find out more.
Cornwall Insight, an energy consultancy that has accurately predicted the Ofgem energy price cap for much of the energy crisis, has released its latest set of predictions now the assessment period for the January 2024 cap has ended. Here they are:
|Time period||Price cap on new typical use figures|
|Old cap: 1 Jul 2023 to 30 September 2023||£1,976 a year|
|Current cap: 1 October 2023 to 31 December 2023||DOWN 7% - £1,834 a year|
|Confirmed new cap: 1 January 2024 to 31 March 2024||UP 5% - £1,928 a year|
|1 April 2024 to 30 June 2024||UP 0.3% - £1,929 a year - PREDICTION|
|1 July 2024 to 30 September 2024||DOWN 2.5% - £1,880 a year - PREDICTION|
|1 October 2024 to 31 December 2024||UP 2% - £1,917 a year - PREDICTION|
Note, based on Ofgem’s new typical use figures of 2,700 kWh for electricity and 11,500kWh for gas
Should I fix my energy?
At present, there are only a few deals that come close to competing with the Ofgem energy price cap. But, crucially, they all sit above the regulator’s October to December 2023 rate.
If, for budgeting purposes, you value cost certainty – ie, knowing exactly what your bills are going to look like for a year or more – it’s definitely worth considering a fix.
But if saving money is more of a priority for you, fixing right now puts you at risk of seeing the Ofgem cap fall while your energy bills remain inflated. Say you then wanted to ditch your fix to get back onto a variable rate governed by the cap, you would face hefty exit fees that could wipe out any savings you’d make.
For all the latest, visit our energy comparison guide. There, we list the current fixed tariff options available to you.
What costs make up the Ofgem energy price cap?
There are all sorts of different elements that contribute to your energy bill – see energy bills explained for full info. But here’s a summary of exactly what contributes to the rates set by the Ofgem price cap:
Wholesale energy costs
Wholesale market costs of gas and electricity are the most influential in determining the size of your bill. It’s the increase in wholesale prices that’s behind the dramatic rise in our bills, accounting for around half of the figure on the statement you get from your provider.
Energy providers usually buy their gas and electricity in advance, so Ofgem tracks the wholesale price over three months to determine the next price cap period. Here is when each assessment period runs and when it feeds into your bills:
Network costs make up around a fifth of the average bill. It’s another substantial cost factored into your bill to provide and maintain the infrastructure that delivers gas and electricity to your home. We’re talking about the gas pipelines and energy pylons here.
But it also includes the cost of bailing out failed energy firms. Energy providers that take on customers after the collapse of another firm can claim additional costs of doing so.
Energy firms claim around a tenth of the average annual bill in operating costs. This includes the energy regulator Ofgem’s allowance for supplier profits, which rose from 1.9% to 2.4% in October to help them remain financially stable.
Policy costs come in at around 8% of your bill.
These pay for several things: the energy company obligation scheme which upgrades home insulation on low-income households, the renewables obligation that sources renewable electricity, the warm homes discount which pays vulnerable customers £150 over winter and specially-designated feed-in-tariff payments that are made to households who have installed solar panels.
Previously some backbench Conservative politicians have called on the government to scrap the ‘green’ policy costs. It’s not quite so straightforward. The feed-in-tariff payments must contractually be made and the renewables obligation payments would still have to be made and likely have to come from our taxes.
VAT makes up 5% of energy bills. There have been calls on the government to temporarily cut VAT but so far it’s been ignored.
How can I keep my energy bills low?
The best way to keep your costs low at the moment is to reduce your overall energy consumption. See Look After My Bills’s advice on how to cut your usage around your home.
Small steps can help – such as turning down your thermostat, switching off lights, not boiling more water in the kettle than you have to (see how much does it cost to boil a kettle?) and cutting down your shower time. Bigger measures will also make a difference, such as improving the insulation in your home or switching to more energy efficient appliances.
If you are struggling, there is help with gas and electricity costs if you are unable to pay your bills.
How did the Ofgem price cap come about?
You might be wondering why the Ofgem energy price cap exists in the first place. Here’s a potted history.
It was introduced in January 2019 by the energy regulator to stop bill payers on standard variable tariffs being overcharged for their gas and electricity, while reflecting changes in wholesale energy prices. Ofgem reviews the energy price cap every three months.
The price cap is supposed to be a backstop preventing customers on standard variable tariffs from being overcharged for gas and electricity while encouraging customers to snap up fixed deals to pay less for their energy. But the energy crisis has turned this on its head.
Rising wholesale prices actually meant the cost of energy was rising quicker than the price cap could keep up – so much so, it resulted in a number of energy companies going bust in 2021. Ever since, most households have been sat on the level of the cap because wholesale costs have prevented meaningful competition from taking place between suppliers.