The energy price cap explained

A new energy price cap level has been announced by Ofgem. The level of the cap, which is supposed to make bills for those on standard and default tariffs more affordable, has actually increased.

A new energy price cap level has been announced by Ofgem. The level of the cap, which is supposed to make bills for those on standard and default tariffs more affordable, has actually increased.

Peter Earl
From the Energy team
5
minute read
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Posted 27 MAY 2021

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 £1,138 a year from 1 April 2021 
  • The prepayment price cap on a dual fuel bill is £1,156 a year from 1 April 2021 

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 rate, 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 in February 2021 that the price cap would rise by £96 from 1 April for 11 million default tariff customers and by £87 for four million prepayment meter customers. Ofgem said this was because of increases in wholesale energy prices.

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. So, it’s possible there could be another change announced in August that will come into effect from 1 October.

What does the energy price cap mean for me?

Most energy providers have introduced price increases for their default and standard variable tariffs in response to the increase in the cap level, meaning many people will find their bills more expensive.

If you don’t shop around or switch to a fixed rate tariff, you’ll most likely continue to overpay for your energy, as you’ll miss out on the cheaper deals on the market.

Default and standard variable tariffs are usually more expensive than fixed tariffs. Fixed tariffs last for a set amount of time, usually 12 or 24 months, with the price per unit of energy locked in for the length of the deal. You’re not affected by the cap if you’re on a fixed tariff – but you will be once the fixed term ends, unless you switch to a new deal.

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.

Ofgem says that the cap “continues to save consumers up to £100 a year”, but acknowledges that they can save more by switching to a more competitive tariff.

Frequently asked questions

How does the energy price cap work?

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 £1,138 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. There are also regional differences in the price cap which reflect different network charges. A cap of £1,156 will apply to people who have prepayment meters.

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.

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

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 switching could give a customer far greater savings than sticking with a supplier’s standard variable tariff year after year.

There’s also no guarantee that energy price cap prices won’t go up again in future.

What is the prepayment tariff price cap?

This is the price cap that applies if you use a prepayment meter for your energy. On 5 February 2021, the regulator Ofgem announced that the cap for four million prepayment meter customers would rise by £87, to £1,156. This price increase has been in place since 1 April 2021.

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 new cap for default tariff customers is £1,138.

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 expected 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.

The prepayment price cap had been expected to finish at the end of 2020. But, on 7 August 2020, Ofgem recommended that the price cap should stay in place for 2021, for all households using prepayment meters and default tariffs.

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. That said, 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 may also be 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.

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