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The energy price cap explained

The energy price cap is set by Ofgem to make sure the bills of households on standard and default tariffs are fair and affordable. It’s in the news because of the impact of soaring energy prices on customer’s bills. But the cap can be confusing so we’ll explain what it is, how it works and how it will affect what you pay for your gas and electricity.

The energy price cap is set by Ofgem to make sure the bills of households on standard and default tariffs are fair and affordable. It’s in the news because of the impact of soaring energy prices on customer’s bills. But the cap can be confusing so we’ll explain what it is, how it works and how it will affect what you pay for your gas and electricity.

Sofia Hutson
Energy expert
5
minute read
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Posted 05 FEBRUARY 2020 Last Updated 10 MARCH 2022

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 tariffs (SVT), and customers who use prepayment meters.  

The cap rate, which is set by the UK’s energy regulator Ofgem, puts a limit on the amount energy companies can charge customers per kilowatt-hour (kWh) of electricity and gas. 

What is the current energy price cap? 

The price cap only applies to you if you’re on a default or prepayment tariff:  

  • The default price cap on a dual fuel bill is £1,971 a year from 1 April 2022 - an increase of 54% 
  • The prepayment price cap on a dual fuel bill is £2,017 a year from 1 April 2022  

You’re likely to be on one of these tariffs if you haven't switched energy suppliers before or you've automatically rolled on to the standard variable rate after your fixed rate tariff came to an end.  

The cap, which is set by the UK’s energy regulator Ofgem, is based on how much gas and electricity a typical household uses. So, if you use more than the average, you could still end up paying more than the cap. 

When will the energy price cap next change? 

Ofgem announced on 3 February 2022 that the price cap would rise by £693 from 1 April for default tariff customers and by £708 for prepayment meter customers. This is an increase from £1,277 and £1,309 respectively on the caps set in August 2021. 

Ofgem said the increase was driven by a record rise in global gas prices over the past six months, with wholesale prices quadrupling in the past year. Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect. 

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

What can I do if I am struggling to pay my energy bill?

October 2021 saw 12-month inflation rates of 18.8% for electricity and 28.1% for gas – and this is before the new increased cap takes effect. This, alongside general rises in the cost of living, is making it difficult for some people to afford to pay their bills.  

Government help 

Because of these steep increases, the government has announced help for consumers. A £200 rebate loan will be available in October to all households, while a £150 council tax rebate for those in council tax bands A to D will be received by customers in April. In addition: 

  • The Household Support Fund has been set up to help vulnerable households. Contact your local authority to see what they can offer you. 
  • You may be eligible for the Warm Homes Discount if you’re getting the Guarantee Credit element of Pension Credit or you’re on a low income. To see if you’re eligible, contact your supplier.  
  • You may also be able to get the Cold Weather Payment or Winter Fuel Payment.  
  • In Scotland, if you have a disabled child or young person aged under 19 living with you, you may be entitled to the Child Winter Heating Assistance

Help from suppliers  

If you’re struggling to pay your bills, the first thing to do is to contact your supplier. Ofgem’s rules mean suppliers must offer payment plans you can afford and you can ask for ‘emergency credit’ if you use a prepayment meter and can’t top up. Some power suppliers have charitable trusts that can help you pay off any arrears.  

  • Anyone can apply to the British Gas Energy Trust. The website also has sources of local advice and help with money and bills. 
  • EDF's energy customer support fund helps vulnerable households stay out of fuel debt. 
  • E.on's Next Energy Fund has been created to help customers experiencing financial hardship. 
  • Ovo's Energy Fund offers debt and energy assistance.  
  • Scottish Power's Hardship Fund can help customers on a low income struggling to pay their Scottish Power debts 

Funds are limited, so it’s a good idea to apply as soon as possible. 

It might also be worth seeing if you would be eligible for any help via Charis, which helps administer grants from businesses (including the power companies), local authorities and charities.  

Help with energy efficiency to reduce your power usage 

Another way to keep your bills in check is to use less power if you can. See these sources of help for making your home more energy efficient: 

What does the energy price cap mean for me?

Whether the changes to the energy price cap will affect you will depend on what tariff you’re on. If you’re on a fixed tariff that doesn’t expire before the end of the price cap, your tariff shouldn’t change. 

But if you’re on a default or standard variable tariff, this is likely to increase in response to the cap level. If this applies to you, you’ll find your bills get much more expensive as energy providers are expected to introduce price increases to these tariffs, to reflect what they’re having to pay in the wholesale market. 

If your fixed tariff runs out during the period of the cap, you’re likely to be switched to the standard variable tariff or offered another fixed price tariff at a much, much higher rate – so your bill is likely to increase either way. 

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

There are some consumers who won’t be eligible for the price cap because they’re on a district heating network. Typically, this applies to blocks of flats where there’s a communal heating system in operation, with the building owner choosing the heating supplier. These networks aren’t currently regulated by Ofgem, so the cap won’t apply. 

There’s no price cap on heating provided by oil, wood or coal. 

How does the energy price cap work? 

Every six months, the energy price cap puts a ceiling on the amount that suppliers can charge you for each kilowatt-hour (kWh) unit of gas and electricity you use, and sets a maximum daily standing charge. (The standing charge covers the cost your energy supplier takes on, to supply your home with electricity and gas.) 

The new cap of £1,971 applies 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 and more or less than average power. There are also regional differences in the price cap, which reflect different network charges. A cap of £2,017 will apply to people who have prepayment meters. 

Suppliers can't charge you more than the cap Ofgem sets and Ofgem monitors suppliers to make sure their default tariff rates comply. 

The important thing to remember is that the energy price cap doesn’t cap the total cost of your energy bill. It only limits the rates you can be charged for gas and electricity. The actual amount you’ll pay depends on how much energy you use, so you could end up paying more, or less, than the level of the cap. Here you can see how the unit rates have increased.

     
Power type 

Price cap period 

1 October 2021- 31 March 2022

Price cap period 

1 April-30 September 2022 

Electricity 

£0.21 per kWh 

Daily standing charge: £0.25 

£0.28 per kWh 

Daily standing charge: £0.45 

Gas

£0.04 per kWh 

Daily standing charge: £0.26 

£0.07 per kWh 

Daily standing charge: £0.27 

Frequently asked questions

Is the energy price cap a good thing?

While the energy price cap protects millions of customers from being charged over the odds for their energy, not everyone agrees that it’s a been a positive move. 

Those who argue against it say it makes people even more reluctant to switch – and, historically, switching could give a customer far greater savings than sticking with a supplier’s standard variable tariff year after year. Others have said with the volatility of current markets, the cap isn’t revised often enough.  

There’s also no guarantee that energy price cap won’t go up again in future. The scheme itself is set to finish in 2023, but it could end sooner or be extended. 

Who benefits from the energy price cap?

The price cap is designed to stop people overpaying for their energy, especially the most vulnerable in society, those who haven’t switched supplier and those who remain with their new supplier after their previous supplier exited the market. Ofgem estimates that around 22 million customers are affected by changes to the cap.  

Prices are capped for people who:  

Are fixed-term tariffs affected by the energy price cap?

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 SVT. If your fix comes to an end in the next six months you’re likely to be switched to the SVT, in which case you’ll be protected by the cap. 

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

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 suppliers must always let you know if your 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. The cap for prepayment meter customers is £1,309, from 1 October 2021 to 31 March 2022, rising to £2,017 – an increase of £708 – from 1 April 2022.

What is the default tariff price cap?

This price cap applies to you if you’re on a supplier’s standard variable tariff (their 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. The cap for default tariff customers is £1,277  from 1 October 2021 to 31 March 2022, rising to  £1,971 – an increase of £693 – from 1 April 2022. 

How long will the price caps last?

The default tariff cap is expected to last until 2023 at the latest. At that point, it’s hoped that advances in the energy industry, as well as a wider roll-out of smart meters and speedier switching times, will give all customers access to better deals. 

Each individual price cap lasts for six months with a new cap coming into force on 1 April and 1 October. Ofgem reviews the market and announces the new figure in advance to allow customers to consider their options and energy providers to update the new figures in their billing systems.

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.  

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