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The energy price cap explained

The energy price cap explained

A new energy price cap level has been announced by Ofgem. The level of the cap – designed to make bills for those on standard and default tariffs more affordable – will fall, effective from 1 April 2020.

Peter Earl
From the Energy team
5
minute read
posted 04 MAY 2020

What is the energy price cap?

The energy price cap limits the amount energy companies can charge customers who are on default tariffs, including standard variable rate (SVR) ones, and customers who use prepayment meters.

Will the price cap level change? 

The level of the cap is set by Ofgem every February and August. Ofgem has now announced that the price cap will fall by £52 from 1 April. Ofgem says this is thanks to lower wholesale costs.

The cap is reviewed every six months and rises and falls largely depending on the price movements of the wholesale energy markets. If energy prices go down, caps fall. If prices go up, the caps rise.

How does the cap work?

The energy price cap puts a ceiling on the unit (kWh) price of energy and on the standing charge applied to bills. (The standing charge covers the cost your energy supplier takes on, to supply your home with electricity and gas.)

However, the energy price cap doesn’t cap your total energy bill. The more energy a household uses, the higher its bill will be.

Who benefits from the energy price cap?

Prices are capped for people who:

If you’re on a fixed-term tariff, your energy prices won’t be capped. The price you’re paying is already likely to be lower than the SVR.

If you’re not sure whether you’re eligible for the energy price cap, you’ll need to contact your supplier.

What does the energy price cap mean for me?

Some energy providers could introduce price decreases for their default and SVR tariffs in response to the decrease in the cap level, meaning bills for some may get cheaper. However, despite a reduction in the cap level, consumers who fail to shop around or opt to switch their energy to fixed rate tariffs will, most likely, continue to overpay for their energy, as they miss out on cheaper deals on the market.

Default and SVR tariffs are usually more expensive than fixed-rate tariffs. Fixed-rate tariffs last for a set amount of time, usually 12 or 24 months, with the price per unit of energy fixed for the duration of the deal. You’re not affected by the cap if you’re on a fixed tariff.

Your tariff details can be found on your latest bill or in your online account. If you’ve never switched from one energy company to another, or haven’t switched for a while, it’s likely you’re on a default or standard tariff.

How will the cap work?

The new cap of £1,127 will apply to default and standard tariff customers who get their gas and electricity from the same supplier, pay by Direct Debit and use an average amount of energy each year. The figure varies if you use a different payment method. A cap of £1,164 will apply to people who have prepayment meters.

The actual size of your bill depends on your energy consumption, so you could end up paying more, or less, than the level of the cap, depending on your usage.

There are regional differences in the price cap which reflect different network charges.

Will the price cap be displayed on my energy bill?

Whether the price cap will be shown on your energy bill depends on your supplier. But all suppliers must inform their customers if their tariff has changed in any way.

What is the prepayment tariff price cap?

This is the price cap that applies if you use a prepayment meter for your energy.

What is the default tariff price cap?

This is the price cap that applies to you, if you’re on your supplier’s standard variable tariff or default tariff and meet the other eligibility requirements. You’re likely to be on a standard variable tariff if your deal has come to an end, and you haven’t switched.

How long will the price caps last?

The default tariff cap is expected to last until 2023. The prepayment price cap is expected to finish at the end of 2020. Ofgem says that by then, smart meters and other changes in the energy industry should give people access to better deals.

What will happen to the price cap if I move home?

If you have an energy price-capped tariff and you transfer it to your new home, the cap will continue to apply. However, moving home is an ideal time to see if you can switch to a better deal – and if you’re on a standard variable tariff, there won’t be any exit fees to consider.

It’s also a good time to see if it’s possible to move from a prepayment meter onto a regular meter. Find out more about moving home and switching energy supplier.

Peter Earl

Head of energy at comparethemarket.com

“A cut of £52 to the price cap for the average household sounds like great news but behind the fanfare, millions of energy customers may incorrectly believe that their energy bills will fall. The reality is that only customers on the typically more expensive standard or default tariffs will automatically see their energy costs decrease.

"The price cap is a price fix – it’s the maximum amount energy providers are permitted to charge their customers on standard and default tariffs, and as a result it should be seen as the absolute ceiling of what the public should be paying. With the cheapest average 1-year fixed tariff on the market more than £300 cheaper than the price cap level coming into effect on 1 April, switching provider is an effective way for consumers to save money and beat the cap.”

How to compare energy prices 

It’s quick and straightforward to run an energy comparison at Compare the Market. We’ll show you a range of tariffs, and once you’ve chosen a switchable tariff, your switch could be completed within three weeks, with no interruption to your supply.

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