The energy price cap and the Energy Price Guarantee schemes explained
The government has put in place an Energy Price Guarantee scheme to take over from the energy price cap. Its aim is to make sure the bills of households on standard and default tariffs are affordable. It’s in the news because of the impact of soaring energy prices on energy bills. We’ll explain the old cap and the new scheme – and what you can now expect to pay.
The government has put in place an Energy Price Guarantee scheme to take over from the energy price cap. Its aim is to make sure the bills of households on standard and default tariffs are affordable. It’s in the news because of the impact of soaring energy prices on energy bills. We’ll explain the old cap and the new scheme – and what you can now expect to pay.
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 Energy Price Guarantee?
The energy price cap has been superseded by the Energy Price Guarantee (EPG) from 1 October 2022. The government says the guarantee will mean that a typical UK household will now pay up to an average £2,500 a year on their energy bill over the 2022/23 winter going up to an average of £3,000 a year after April 2023. This is automatic and applies to all households. Customers on a fixed tariff may also see their bills cut.
This is lower than the figure previously set by Ofgem, but means that an average energy bill will still be over £1,000 more in April 2023 compared with the previous April.
You won’t need to apply for the EPG and there’s no need to contact your energy supplier unless you’re having problems paying. If someone contacts you to tell you to claim the price guarantee, it's a scam and you should ignore it. Changes to your bill should happen automatically if you live in England, Scotland or Wales. Your energy supplier should have contacted you to tell you what the new guarantee will mean for you from 1 October 2022.
In his Autumn statement in November 2022, the Chancellor doubled the support for households using alternative fuels, including heating oil and LPG, from £100 to £200. The government say this payment should be "delivered as soon as possible this winter".
The government is working with Northern Ireland partners, including the NI Utility Regulator and NI energy suppliers, to make sure similar levels of support can be delivered to consumers and businesses in Northern Ireland.
There will also be a new fund to help people who pay don’t pay directly for mains gas and electricity – such as those living in park homes or on heat networks.
What was the energy price cap set by Ofgem?
The default price cap on a dual fuel bill was due to be £3,549 a year from 1 October 2022, up from £1,971 for the period April-September – an 80% increase.
The prepayment price cap on a dual fuel bill was set to be £3,608 a year from 1 October 2022, an increase on the April-September cap of £2,017.
It only applied to default or prepayment tariffs and is based on an average consumption of 2,900kWh (kilowatt hours) of electricity and 12,000kWh of gas.
But because the cap was set to rise so steeply, the government has stepped in and created a new mechanism for lowering energy prices, effectively freezing bills for typical households at £2,500, rising to £3,000 from April 2023.
But like the price cap, the price guarantee is not a limit on how much you will pay – your bill depends on how much energy you actually use. If you’re an average user (and many people are not) this would mean a bill of £209 a month – averaged out across the year, and this will rise again in April.
Although the new price change will happen in April 2023, some suppliers may start increasing direct debits before this date to spread costs or make up for any shortfall on winter bills.
How do I know if I’m on a default tariff?
You’re likely to be on a default tariff 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. You’re also likely to be on the standard tariff if your supplier stopped trading and you were switched to a new supplier.
How much am I likely to pay?
Under the new Energy Price Guarantee, the average house will save around £1,000 and the average flat will save £700 compared with the previously announced cap for October. But you're still likely to be paying a lot more than you did before.
When will the energy price cap next change?
The Ofgem price cap was due to change in January 2023, but the new price guarantee, which supersedes it, is currently planned to last until April 2023, when it's set to rise by around £500 for the average household.
Some analysts predicted that a typical annual bill could hit nearly £5,400 in January and £6,600 in April – so the new Energy Price Guarantee is designed to reduce that a little.
Ofgem says the bill increases have been driven by a record rise in global gas prices – a once in 30-year event – with volatile gas prices affecting everyone around the world. The number of suppliers who have gone out of business has also had an impact, with the market having to absorb the costs of taking new customers from the failing businesses.
What can I do if I’m struggling to pay my energy bill?
Increases in energy prices alongside general rises in the cost of living are making it difficult for many people to afford to pay their bills. But help is available. Firstly, you should talk to your supplier. They must discuss payment plans and tell you what support is available.
There are also charitable schemes you can apply to for help. Get details of where to apply and more in our guide: What to do if you can't afford your energy bills
Other government help
Because of the steep increases in energy costs, the government has announced help for consumers. Every household is getting £400 off their electricity bill under the Energy Bills Support Scheme. If you don’t use a prepayment meter or have a smart prepayment meter, the discount will be paid automatically. Traditional prepayment meter customers will receive a voucher or Special Action Messages by text, email or post.
You’ll get the £400 in six instalments starting from October 2022. You’ll get:
- £66 off your electricity bill in October and November
- £67 off your bill in December, January, February and March.
People on qualifying benefits could also be entitled to an additional £650.
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 Guarantee mean for me?
Whether the changes to the Energy Price Guarantee 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 guarantee, your tariff shouldn’t change.
But if you’re on a default or standard variable tariff, this is likely to increase as prices rise. You’ll find your bills get 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. But the new guarantee means the unit price of gas can’t rise above the set level.
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 guarantee because they’re on a district heating network. This typically applies to blocks of flats where there’s a communal heating system in operation, with the building owner choosing the heating supplier. Park homes are also treated differently so haven’t had prices capped so far. The good news, if you’re in this situation, is that the government has promised that you will be no worse off than other types of households and will receive support through a new fund.
How do the energy price cap and the Energy Price Guarantee 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).
Suppliers can't charge you more than the cap Ofgem sets and Ofgem monitors suppliers to make sure their default tariff rates comply.
The Energy Price Guarantee puts a cap on the unit price of gas and removes green levies from household bills.
The important thing to remember is that neither the energy price cap nor the Energy Price Guarantee cap the total cost of your energy bill. It only limits the rates you can be charged for what you use. 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. What you pay also depends on the kind of meter you have. If you’re on a prepayment meter, your unit cost will typically be higher than for direct debit.
Here you can see how the unit rates have increased.
|
Average price cap unit rates Customer with typical usage, paying by direct debit** |
||
|---|---|---|
| Power type |
Price cap period |
Price guarantee period (1 October 2022 - 2024) |
| Electricity |
28p per kWh Daily standing charge: 45p |
34p per kWh Daily standing charge: |
| Gas |
7p per kWh Daily standing charge: 27p |
10.3p per kWh Daily standing charge: 28p |
| **Rates are averages and will vary by region, payment method and meter type. See the regional rate for your area or contact your supplier for personalised information. | ||
If you’re on a fixed tariff
If you’re on a fixed tariff at a higher rate caused by recent energy price rises, your unit prices will be reduced by 17p/kWh for electricity and 4.2p/kWh for gas.
Energy suppliers will adjust fixed tariffs automatically. Customers on fixed tariffs do not need to take any action to get the benefits of this scheme.
Frequently asked questions
Who benefits from the energy price cap?
The price cap and the Energy Price Guarantee are designed to stop people having to pay unexpectedly large amounts for their energy, especially the most vulnerable in society, those who aren’t on a fixed tariff and those who remain with their new supplier after their previous supplier exited the market.
Prices are capped for people who:
- Use prepayment meters for their energy
- Have the Government’s Warm Home Discount and/or
- Are on a standard variable tariff or a default tariff.
Are fixed-term tariffs affected by the energy price guarantee?
The energy price cap didn't apply to fixed rate tariffs, but the price guarantee scheme does.
If you’re on a fixed tariff at a higher rate caused by recent energy price rises, your unit prices will be reduced by 17p/kWh for electricity and 4.2p/kWh for gas.
These unit prices have been passed to suppliers to ensure that they are used to calculate bills on time for 1 October.
Energy suppliers will adjust fixed tariffs automatically. Customers on fixed tariffs do not need to take any action to get the benefits of this scheme.
If your fix comes to an end in the next two years you may be switched to the SVT, in which case you’ll be protected by the guarantee there.
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.
Will I benefit from the guarantee if I am paying for my energy as part of my rent?
The Energy Price Guarantee is applied per unit of gas or electricity used for households with a domestic electricity connection, so will be applied if your landlord has a domestic electricity contract with a licensed electricity supplier.
Your landlord may be reselling the electricity to you based on your usage, in which case:
- They must comply with the maximum resale price rules which say they must not make a profit
- The maximum resale price for electricity is currently set at the same price as that paid by the person reselling it (see Ofgem’s guidance on ensuring customers are being charged no more than they should)
Your landlord may charge an ‘all inclusive’ rent, where a fixed cost for energy usage is included in your rental charges, in which case:
- They are encouraged to come to an agreement with you on the Energy Price Guarantee in line with the arrangement in your tenancy agreement.
- The landlord’s fixed charge may already provide you with similar protection from the impact of energy price increases
long will the Energy Price Guarantee last?
The current Energy Price Guarantee will update in April 2023.
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