is What the Energy Price Cap in 2023
The energy price cap has been set at £1,923 per year for those on standard variable – or default – tariffs. However, actual bills will depend on consumption, so comparing deals for householders is worth comparing. The cap is based on the ‘typical use’ of a dual-fuel household paying direct debit. It is reviewed four times a year by Ofgem, the energy regulator.
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 Energy Price Cap?
The energy price cap limits the maximum rate that suppliers can charge for each unit of electricity and gas consumed. But the size of your energy bill will still depend on how much you use and other factors such as what type of meter you have, whether you pay by direct debit or cash, and where you live. The latest cap was announced in February 2022 and is based on a typical household on a dual fuel standard variable tariff (SVT) paying by direct debit. It is forecast to fall below £2,000 in October before edging back above it at the beginning of 2024.
Wholesale prices have fallen, prompting some suppliers to offer fixed rates again. But households should think carefully before signing up for one – energy prices are still unpredictable, and a fixed tariff could cost you more in the long run if wholesale prices rise. This was a concern raised by the Centre for Policy Studies.
How is the Energy Price Cap Calculated?
The energy price cap limits how much a supplier can charge a household for each unit of gas and electricity they use. It is reviewed by energy regulator Ofgem twice a year, with changes to the cap coming into effect in February and October. The cap level is based on average household gas, electricity usage, and payment method (direct debit or prepayment). It also factors in wholesale market prices, network costs, policy costs, operating costs, VAT and fair profits for energy suppliers.
Wholesale market prices have fallen from their summer 2022 peaks, but there will be a lag before this falls through into bills because most suppliers buy their energy months in advance. The energy price cap reduction will help reduce this lag, but it is still likely that many households will pay more than their energy supplier’s headline price. This is why we recommend comparing tariffs and switching providers if you want to save money on your bills.
Are Suppliers Exempt From the Energy Price Cap?
The cap levels were set by Ofgem and are based on average household energy use. But, if you use more or less Energy than the average, your annual bills could still be more than the cap level. This is because the price cap only limits the unit rates that energy suppliers can charge you on their standard variable tariffs – rather than your overall bill. So your costs could still be higher than those who don’t pay an SVT.
You should typically save by switching to a new supplier if you’re on an SVT, but the savings will vary from provider to provider. Some energy suppliers can offer prices under the price cap because they can trace their renewable electricity from generation to your home. These are usually called 100 per cent green energy tariffs. Good Energy, for instance, is a company that can do this and has won a permanent exemption from the price cap.
What is the Energy Price Cap for 2023?
The energy price cap limits the unit costs of gas and electricity suppliers charged to standard variable tariff (SVT) customers. The cap prevents bills from spiralling for those on the most expensive deals. The cap is currently set at £2,074 per year for dual fuel, typical consumption households paying by direct debit. This includes the unit rate and standing charges, varying by region.
Ofgem has said that it will review the energy price cap at least four times a year based on wholesale prices, network costs, policy costs and prepayment meter costs.
This could lead to the cap being lowered, saving householders money. However, despite the cap falling below the government’s Energy Price Guarantee level, Cornwall Insight’s latest predictions show that energy prices are still far above pre-crisis levels and have the potential to rise even further over the coming months. This would undermine the effectiveness of the cap.
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