The UK Energy Price Cap Explained: What You Need to Know
The energy price cap limits the unit rate and standing charge energy suppliers can charge for their standard variable – or default – tariffs. The UK energy price cap plays a significant role in regulating energy costs for households. However, with the recent price rises, it’s more important than ever to stay informed, explore your options, and potentially switch suppliers or tariffs to save money on your energy bills.
If you would like to read more information or learn more about the pricing of business energy, you can do so here.
What is the UK Energy Price Cap
From April 1st to June 30th, 2024, the energy price for a typical household using both electricity and gas and paying by Direct Debit will decrease to £1,690 per year. This represents a reduction of £238 per year compared to the price cap set from January 1st to March 31st, 2024 (£1,928).
You are eligible for coverage under the energy price cap if you pay for your electricity and gas through any of the following methods:
- Standard credit (payment made upon receipt of your electricity and gas bill)
- Direct Debit
- Prepayment meter
- Economy 7 (E7) meter
The precise amount you pay will be contingent on factors such as your household’s energy consumption, your location, and the type of meter you have.
What is the Purpose of the Energy Price Cap
The energy price cap sets a ceiling on the maximum rates gas and electricity providers in the UK can impose on customers with standard variable tariffs (SVTs). It governs both the unit price (cost per kilowatt-hour (kWh) for electricity and per cubic meter (m³) for gas) and the standing charge (a fixed daily fee) associated with consumers’ energy bills.
The price cap safeguards millions of households across England, Wales, and Scotland who are enrolled in standard variable tariffs for their gas and electricity. If consumers have not switched suppliers or opted for a fixed-rate tariff in the preceding year, they likely fall under a standard variable tariff and are thus protected by the price cap.
Determination Process
Ofgem periodically assesses and establishes the price cap level every three months, considering various factors such as wholesale energy market expenses. These factors encompass the procurement costs of acquiring gas and electricity on the wholesale market, network operational expenses, and environmental and social costs.
How This Affects Prepayment Meters
In the past, individuals who paid for their energy using a prepayment meter incurred higher standing charges than those paying by Direct Debit. This discrepancy arose because supplying electricity and gas to customers on prepayment meters incurred higher costs for energy suppliers.
We are implementing changes to balance standing charges between prepayment and Direct Debit payment methods to address this issue. Our objective is to ensure that individuals using a prepayment meter do not bear a disproportionate burden compared to other payment methods. Previously, the UK government provided support through the Energy Price Guarantee, which eliminated the ‘PPM premium’. However, this support is scheduled to end on April 1, 2024.
As a lasting solution, we have adjusted the price cap to ensure fair standing charges, which will be funded by energy bill payers rather than taxpayers. Individuals with a prepayment meter will receive continued support to ensure their standing charges are no higher than those for Direct Debit payments. Customers using both electricity and gas from the same supplier via a prepayment meter stand to save approximately £49 per year (£52 including VAT). However, those paying by Direct Debit will incur an additional cost of £10 per year.
Impact on Customers
- The rising price cap will unfortunately lead to higher energy bills for households on standard variable tariffs.
- This emphasizes the importance of being aware of your current tariff and exploring potential ways to save money on your energy bills.
Energy Providers in the UK
Best Energy Suppliers in the UK |
Company |
Fewer Complaints |
Easy to Switch |
Clear Bills |
Easy to Contact |
|
|
3 |
5 |
4 |
3.2 |
3.65 |
|
2 |
5 |
4 |
4 |
3.5 |
|
3 |
Not scored |
5 |
3.2 |
3.35 |
|
3 |
4 |
4 |
2 |
3.25 |
|
3 |
4 |
4 |
2 |
3.25 |
|
2 |
5 |
4 |
3.4 |
3.15 |
|
1 |
5 |
5 |
3.2 |
3.15 |
|
1 |
5 |
5 |
2.8 |
2.85 |
|
1 |
5 |
4 |
3.2 |
2.75 |
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The UK Energy Price Cap FAQS
How does the Energy Price Cap work?
The Price Cap establishes a ceiling on the maximum rates energy suppliers can charge for each unit of gas and electricity consumed, as well as setting a maximum daily standing charge for maintaining your home’s connection to the grid. This means that while there’s a cap on the rates, the total amount you pay depends on your actual energy usage. If you consume more energy, your bill will be higher, and if you use less, your bill will be lower.
The Price Cap applies solely to providers’ standard and default tariffs. If you’re enrolled in a fixed-term energy deal, the Cap does not affect you. However, individuals who prepay for their energy still benefit from a slight reduction in standing charges under the Energy Price Guarantee.
If you haven’t switched energy suppliers in approximately the last year, it’s probable that you’re currently on a tariff governed by the Price Cap.
How has the price cap flutuated over time?
How the Price Cap Has Changed Historically |
|
Monthly Direct Debit |
Other payment method |
Prepayment |
2024 spring
(1 April to 30 June) |
£1,643/year |
£1,690/year |
£1,796/year |
2024 winter
(1 Jan to 31 March) |
£1,917/year (2) |
£1,928/year |
£2,058/year |
2023 autumn
(until 31 December) |
£1,821/year (2) |
£1,834/year |
£1,959/year |
2023 summer
(until 30 September) |
£1,982/year (3) |
£1,976/year |
£2,108/year |
2023 spring
(until 30 June) |
£3,162/year |
£3,116/year |
£3,309/year |
2023 winter
(until 31 March) |
£4,138/year |
£4,059/year |
£4,301/year |
2022 autumn
(until 31 December) |
£3,431/year |
£3,371/year |
£3,577/year |
2022 summer |
£1,924/year |
£1,877/year |
£2,002/year |
2021/2022 winter |
£1,248/year |
£1,216/year |
£1,304/year |
2021 summer |
£1,104/year |
£1,084/year |
£1,165/year |
2020/2021 winter |
£1,022/year |
£993/year |
£1,069/year |
2020 summer |
£1,112/year |
£1,073/year |
£1,153/year |
2019/2020 winter |
£1,128/year |
£1,089/year |
£1,170/year |
How is the price cap calculated?
The Price Cap is determined by considering various costs that energy suppliers incur. Among these costs, wholesale energy expenses stand out as the largest component, constituting approximately 50% of a standard bill under a tariff priced at the maximum allowed by the current Price Cap, applicable from 1 January to 31 March 2024.
Wholesale energy costs are highly dynamic and drive most of the fluctuations in the Price Cap every three months due to their constant variability.
Additionally, other factors contributing to the Price Cap include expenses related to maintaining the infrastructure, such as the pipes and wires facilitating the distribution of gas and electricity. Moreover, operational costs incurred by suppliers for customer billing and metering services also influence the determination of the Price Cap.
UK Energy Price Cap – Other useful links about Business Energy:
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