The Energy price cap

On 1 January 2019, the government energy regulator, Ofgem, introduced an energy price cap for customers on certain tariffs.

It was designed to prevent customers on variable or standard tariffs that rarely (or never) switch from being overcharged by their energy supplier. 

What is the price cap?

The price cap is a limit on how much suppliers charge for prepayment, standard variable and default tariffs.

The level of the price cap depends on what tariff you’re on, how you pay and where you live. 

The price cap is updated every April and October. The next one due to come into effect on 1 April 2022 will see prices rise to an all-time high. This is due to a shortage of gas and electricity, which has increased energy costs for suppliers.  

For default tariffs paid by direct debit, the cap will increase by £693, making the cap £1,971. For prepayment tariffs, there will be an increase of £708, to £2,017.

Who is the price cap for?

The price cap is for people who are on a prepayment, standard variable tariff (SVT) or fixed default tariff. Ofgem data shows that most people are on these types of tariffs.

Customers generally end up on these tariffs as they haven’t switched in the last couple of years or they’ve never switched at all.

This is because you’re usually automatically put back on these expensive tariffs when your fixed energy deal ends.

Will the price cap put a limit on how much I pay?

No. It’s important to know the price cap does not mean your bill cost will be capped, as that’s calculated by your energy usage.

 The price cap is actually a limit on the rates that suppliers use to charge you. 

Supplier charge rate + energy usage = how much you pay.

 The supplier charge rates due to take effect from 1 April are:
Electricity Gas
Unit rate £0.28 per kWh £0.07 per kWh
Daily standing charge £0.45 £0.27

Will the cap save me money?

Whether the price cap would be a saving for you depends on your circumstances – like what tariff you’re on, your usage and payment method. 

Right now, you’d likely save money because fixed tariffs are generally more expensive than the price cap. But as we don’t know what will happen in the energy market, it’s tricky to be definite about whether the price cap could save you money long-term.

For a typical customer – who has dual fuel, medium usage, and pays by Direct Debit – the current price cap means they would pay a maximum of £1,277. The cheapest tariff on the market for dual fuel in January 2022 was £1,205.[1]

It’s worth pointing out that the price cap is keeping the overall average cost of tariffs down, but chances are you’ll find that fixed tariffs are generally more expensive at the moment. Once the new price cap comes into effect in April, costs will start to rise. 

Generally if you’re paying less than the cap, your prices could increase.

With the current energy crisis, reasonably-priced deals are hard to find, so the only way to find out whether there’s a better deal out there is to contact suppliers directly

[1]Average cheapest available tariff on the market price from Ofgem‘s ‘Average tariff prices by supplier: Standard variable and fixed default vs cheapest available tariffs (GB)’ chart. Average price cap set by Ofgem from 1 April 2022.