The energy price cap
If you’re on a standard energy tariff, the energy price cap will probably apply to your charges. Find out what it means for your bills.
What is the energy price cap?
It’s the maximum price energy suppliers can charge customers - both for the standing charge and the price of each kWh of electricity and gas (also known as the unit rate).
Key points
- The energy price cap is designed to keep prices fair for both customers and suppliers as wholesale gas and electricity prices rise and fall
- It only applies to customers on a standard variable tariff (SVT). If you’re on a fixed-term deal, it doesn’t affect you
- If you're on an SVT, you may not be able to save currently by shopping around, but you could speak to suppliers directly to see if they have a more competitive rate
The cap is set by the independent energy regulator Ofgem four times a year - announced in February, May, August and November, with changes coming into effect every April, July, October and January respectively.
It applies only if you’re on a default energy tariff, often called a standard tariff or ‘standard variable tariff’ (SVT).
The price cap doesn’t apply if you’re on a fixed-term energy tariff or a standard variable green energy tariff that Ofgem has exempted from the cap.
The level the price cap is set at is based on what it costs companies to supply you with energy.
Mostly, that includes taking into account the market conditions in the wholesale energy market and what it costs suppliers to buy international oil and gas. If wholesale energy prices go down, the cap is lowered. But if they go up, the price cap is raised.
When Ofgem sets the cap it also takes into account network costs to build and run the pipes and wires to transport energy to you. These vary by region so there are different price caps for different areas.
The way you pay and the type of energy meter you have will also have a bearing on what your supplier charges you to meet the cap.
Suppliers can charge less than the set level of the cap, but not more.
The price cap doesn’t cap the total cost of your bill - the amount you pay also depends on how much gas or electricity you use.
Why is there an energy price cap?
It was brought in to protect consumers from unfair pricing and ensures that suppliers pass on only legitimate price rises as well as any drops in their costs to their customers.
In a similar way, it protects suppliers. A rise in the cap to reflect higher wholesale energy and supply prices allows suppliers to recover these costs.
Does the price cap affect me if I’m on a prepayment meter?
There’s a separate cap for people on prepayment tariffs. It works in the same way as the default tariff price cap but is set at a different level.
What’s the impact of the energy price cap?
The energy price cap applies only if you’re on a default energy tariff (often called a basic tariff or ‘standard variable tariff’). This means that, depending on the costs of wholesale energy, your bills on this tariff can go up or down.
Some people on these tariffs mistakenly think that the price cap can protect them from rising costs in wholesale gas and electricity, but this is not the case. The cap is raised when there are hikes in wholesale costs.
A new cap rate was announced in August 2022 to reflect the rise in energy prices over the last six months, with gas prices quadrupling in the last year.
This cap, takes effect on 1 October, and will affect 24 million customers and see bills hiked up to an all-time high. Ofgem says that those on default tariffs paying by direct debit could see an increase of 80% from £1,971 to £3,549. Prepayment customers will see an increase of £1,591 from £2,017 to £3,608.
How does the energy price guarantee affect the price cap?
The energy price guarantee was announced by Prime Minister, Liz Truss in September 2022. It means that households in England, Scotland and Wales will pay an average of £2,500 for their energy, instead of the £3,549 announced by Ofgem.
This guarantee will last until 2024.
How can you save money?
Honestly, finding a cheap deal is unlikely at the moment, but you could still compare a range of tariffs or go directly to suppliers to see what your best options are. You might find it's worth considering a default tariff instead of a fixed-rate deal.
Not sure if you’re already on a default tariff? Contact your supplier. Default tariffs can have lots of different names - including ‘standard variable tariff’ (SVT).
You’re likely to be on this tariff if you’ve never switched supplier before or if a fixed-rate deal you’ve been on has come to an end and you haven’t shopped around for a new one. You could also be on a default tariff if you’ve just moved into a new home.