What is the energy price cap?

What is the energy price cap?

How does it work and how much is it?

The Government's 'Energy Price Guarantee' means no one pays the full amount under the energy price cap anymore. However, Ofgem’s price cap still controls the underlying energy prices. We’ve full info below on how the cap works, what it is and how it interacts with the energy price guarantee.

 

How does the price cap work? How much is it? Plus much more

The price cap was introduced on 1 January 2019 by regulator Ofgem, with the aim of preventing the millions of households on expensive variable tariffs from being ripped off.

It limits what you pay for each unit of gas and electricity that you use, plus it sets a maximum daily standing charge (what you pay to have your home connected to the grid). It's based largely on wholesale energy prices (those that firms pay) and applies only to providers' standard and default tariffs, which the vast majority of households are now on. 

Due to record high energy prices, the Government stepped in and introduced the energy price guarantee, which provides a discount on the price cap for households. This means the Government is subsidising the cost of energy and limiting the amount suppliers can charge per unit of energy used.

Under the energy price guarantee, someone with a 'typical' amount of energy usage, paying by direct debit, would currently pay £2,500/year. But this is set to rise in April to £3,000/year, and will remain at this level until it ends on 31 March 2024. We've full info in our Energy Price Guarantee guide.

  • Energy bills are currently limited by the energy price guarantee – does the price cap still matter?

    The energy price cap still exists, but currently, no one pays the rates set by the cap. What we pay is limited by the energy price guarantee (EPG) – put in place by the Government in October 2022.

    However, the price cap still matters. It sets limits on the underlying rates providers can charge. The EPG is then applied to the price cap rates to bring down the price to the Government's promised level. 

    For a typical dual-fuel household paying by direct debit, the price cap is currently set at £4,279/year. But with the EPG discount, this is reduced to £2,500/year, with the Government offsetting the difference. From April, the EPG is set to increase to £3,000/year for a typical household, and will remain at this level for a year.

    The price cap changes every three months, and each time it changes, the Government amends the discount provided by the EPG to keep a typical household bill at £2,500/year (or £3,000/year from April). If the price cap falls below the EPG at any time, the price cap will be reinstated and this is the rate you'll pay. 

    While the Government currently aims to keep typical bills at £2,500/year under the EPG, due to the way it interacts with the price cap, some people still saw changes to their bills, with those on Economy 7 tariffs hit hardest.

  • When and how will the price cap next change?

    While the energy price cap rose in January 2023, the energy price guarantee kept prices at £2,500/year for a typical household. In April, the price cap is expected fall – though it's predicted to remain above the price guarantee. This means we'll continue to pay the EPG rates until then. 

    However, due to plummeting wholesale energy prices, the energy price cap is predicted to drop below the price guarantee from July. If these predictions pan out, it means the price guarantee will fall away, and we'll pay the lower price cap rate instead. 

    Energy price cap changes vs the energy price guarantee

    Price cap dates

    Change in dual-fuel direct-debit price cap compared to previous price cap (2)

    Typical dual-fuel household direct debit bill under the energy price guarantee 

    THE PREVIOUS RATE

    1 October 2022 to 31 December 2023

    £3,549/year £2,500/year

    THE CURRENT RATE

    1 January 2023 to 31 March 2023

    UP 20%

    £4,279/year on typical use.

    £2,500/year

    1 April 2023 to 30 June 2023
    Prediction (1)

    DOWN 25%

    £3,209/year on typical use.

    £3,000/year

    1 July 2023 to 30 September 2023
    Weak prediction (1)

    DOWN 31%

    £2,201/year on typical use.

    £3,000/year
    1 October 2023 to 31 December 2023
    Weak prediction (1)

    UP 2%

    £2,241/year on typical use.

     

    £3,000/year

    (1) According to the latest prediction (on Thursday 19 January) from analysts at Cornwall Insight. (2) The prepay price cap is about 2% higher, and for those who pay each month after getting a bill, 6% higher. That differential will likely continue.

  • Wholesale energy prices are falling – what does this mean for the energy price cap?

    Wholesale energy prices (what providers pay for gas and electricity) have plummeted in recent weeks from record highs, largely due to the mild winter across Europe and less demand, as everyone tries to use less energy.

    However, while wholesale prices have fallen recently, they remain much higher than before the energy crisis hit – about 3 or 4 times as much.

    Martin explains on his TV show what the fall in wholesale prices mean for households bills (or see the full transcript if you prefer to read): 

    Martin Lewis discusses wholesale energy prices on The Martin Lewis Money Show Live.
    Embedded YouTube Video

    The clip above has been taken from The Martin Lewis Money Show on Tuesday 10 January 2023, with the permission of ITV Studios. All rights reserved. Watch the full episode on the ITV Hub.

  • When will the price cap next change and what are the assessment periods?

    The price cap changes every three months in January, April, July and October. 

    Price cap changes are largely based on the costs suppliers face for providing energy – though there are a number of other factors that affect the cap.

    Do note it has also given itself the power to change the cap at points during 'exceptional circumstances'.

    Energy price cap timings and wholesale assessment periods 

    Price cap period  Date announced Wholesale assessment period

    Current price cap:

    1 January 2023 to 31 March 2023

    24 November 2022 1 February 2022 to 16 November 2022 
    (Ofgem will apply certain weightings due to the longer wholesale price observation period and shorter price cap period)
    April 2023 cap: 
    1 April 2023 to 31 June 2023
    27 February 2023  17 November 2022 to 17 February 2023
    July 2023 cap:
    1 July 2023 to 31 September 2023
    26 May 2023 20 February 2023 to 18 May 2023
    October 2023 cap: 
    1 October 2023 to 31 December 2023
    25 August 2023 19 May 2023 to 17 August 2023
    This covers the price cap cycle until the end of 2023. It will likely carry on using a similar pattern as above from 2024 onwards. (1) Based on typical annual use for a dual-fuel household paying by direct debit.
  • What are the unit rates and standing charges under the price cap and energy price guarantee?

    The energy price cap rose by 20% on 1 January, from £3,549 to £4,279 for a typical user. But with the Government's energy price guarantee discount, a typical household paying by direct debit will pay around £2,500/year.

    But remember, this isn’t the maximum you'll pay, it's based on an average household with typical use - if you use more, you pay more.

    The price cap and price guarantee sets a limit on the rates you pay. For a region-by-region breakdown on what you'll pay from 1 January, see our What are the energy price guarantee unit rates guide. 

    What are the unit rates and standing charges under the energy price guarantee?

    The table below shows the average unit rates per kilowatt hour (kWh) and standing charges per day (these vary by region) under the energy price guarantee from 1 January.

    What are the average standing charges and unit rates for gas and electricity from 1 January 2023?

      Gas Electricity
    Direct Debit

    Unit rate: 10.33p per kWh

    Standing charge: 28.49p per day

    Unit rate: 34.04p per kWh

    Standing charge: 46.36p per day

    Prepayment

    Unit rate: 10.82p per kWh

    Standing charge: 37.51p per day

    Unit rate: 33p per kWh

    Standing charge: 51.41p per day

    On receipt of a bill

    Unit rate: 11.27p per kWh

    Standing charge: 33.54p per day

    Unit rate: 37.67p per kWh

    Standing charge: 52.40p per day

    Rates and standing charges are averages, which vary by region. Assumes payment via direct debit and includes VAT (at 5%). For those who pay each month after getting a bill, it's typically 6% higher.
  • How does the energy price cap work?

    The price cap sets a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).

    That means there's no upper limit to what you actually pay – if you use more energy, you'll pay more, use less and you'll pay less.

    It only applies to providers' standard and default tariffs, so if you're on a fixed-term energy deal, the cap doesn't apply (although currently you still get a discount on rates under the energy price guarantee). If you've not switched in the last year or so, it's likely you're on a capped tariff.
  • How has the price cap changed over time?

    The energy price cap now changes every three months (previously it was every six) – mainly based on average energy wholesale prices in the months leading up to each change (see How is the price cap calculated? for more info). As a result, the average price of the cap, based on typical use, has fluctuated since it was first introduced in 2019.

    As the table below shows, the price cap reached it's highest-ever level in January. However, due to the energy price guarantee no one currently pays the price cap rates.

    How energy price cap has changed

      Monthly direct debit  Prepayment (1)  Other payment method
    2023 winter (until April) £4,279/year £4,358/year £4,533/year
    2022 autumn (until January) £3,549/year £3,608/year £3,764/year
    2022 summer £1,971/year £2,017/year £2,100/year
    2021/2022 winter  £1,277/year £1,309/year £1,370/year
    2021 summer £1,138/year £1,156/year £1,223/year
    2020/2021 winter £1,042/year £1,070/year £1,121/year
    2020 summer £1,126/year £1,164/year £1,209/year
    2019/2020 winter £1,143/year £1,182/year £1,227/year
    2019 summer £1,217/year £1,256/year £1,305/year
    2018/2019 £1,104/year £1,143/year £1,186/year

    Based on Ofgem figures for typical dual-fuel use. Winter price caps last from 1 October to 31 March, summer price caps last from 1 April to 30 September. From October 2022, the price cap changes every three months with winter price cap from 1 Jan to 31 Mar, spring from 1 Mar to 31 May, summer from 1 June to 30 Sep and autumn from 1 Oct to 31 Dec (1) The prepayment price cap has been in place since 2017, we've only shown 2019 onwards for comparison against other payment methods.

  • How do I know if I'm on a price-capped tariff?

    The price cap applies to 'default' tariffs – ones you don't actively choose to switch to – whether you pay by direct debit, cash or cheque, or prepayment. These tariffs are generally known as standard variable tariffs (SVTs), and you'll be on one if any of the below apply.

    But right now, due to the energy crisis, almost everyone is on a price capped tariff, albeit discounted by the energy price guarantee, as there are no cheap deals to switch to.

    • You've never switched your energy tariff. You would have always been on your supplier's standard tariff, so you will be protected by the price cap.

    • You were on a fixed deal, but haven't chosen to switch again. If you have previously chosen a fixed deal, once the fix period ends you will be automatically rolled on to a price-capped tariff if you do nothing.

    • You were with a supplier that has gone bust. In most cases, if your supplier goes bust, your existing tariff with that supplier will end, and Ofgem will pick a new supplier to take over. Your new tariff with the new supplier will be protected by the price cap.

      In the past, we have seen some providers offering rates lower than the price cap when taking on customers from failed suppliers (such as when EDF took on Green Network Energy customers) – but this is unusual. Regardless of what rate you're offered, you can't be charged more than the price cap (and, right now, the energy price guarantee) when being moved from a failed supplier.

    • You're moving home. Usually when you move home, your current tariff will end when you let your supplier know you're moving out (a few let you transfer fixed deals, so do check).

      You'll then need to contact the existing supplier of the property you're moving into, to let them know when you moved in and to set you up with a new account. From the date you moved in, you'll be placed on a 'default' tariff, which is controlled by the price cap.

    The price cap doesn't apply to fixed deals on the market – although if you're on a fixed rate deal right now, you still get a discount on your rates under the energy price guarantee.

    The price cap also doesn't apply to any standard variable tariffs that have an exemption to the price cap (this is only for very green deals, and you still have to choose to be on them).

  • Does the price cap change depending on how I pay?

    Yes. The price cap is set differently for those that pay by monthly direct debit, those that pay quarterly or on the receipt of a bill, and for those that prepay for their energy:

    • If you pay by direct debit, from 1 January 2023 the price cap is an average £4,279 a year on typical use. This has been discounted to £2,500 under the energy price guarantee. This is the lowest, as direct debit is cheaper for suppliers.

    • If you pay by cash, cheque or quarterly direct debit, the price cap is £4,533 a year on typical use. This has been discounted to £2,754 under the energy price guarantee. Ofgem says this is higher to reflect the additional costs from suppliers to bill those that don't pay by monthly direct debit.

    • If you prepay for your energy, the price cap is £4,358 a year. This has been discounted to £2,579 under the energy price guarantee. Similarly, Ofgem says it costs more to bill customers with prepayment meters, compared to those paying by direct debit.
  • How is the price cap calculated?

    The price cap is calculated based on a range of costs energy suppliers face. The largest cost is wholesale energy – what energy suppliers pay for gas and electricity. This accounts for about 75% of a typical bill for a tariff priced at the maximum allowed under the current price cap from 1 January 2023.

    It's also what causes most of the change to the price cap every three months, as wholesale prices are constantly fluctuating.

    Other elements include things such as the costs of maintaining the pipes and wires that carry gas and electricity, or the operating costs suppliers face for billing customers and providing metering services. See the full list below.

    Ofgem can also add on any unexpected costs to the price cap

    There's also what's known as an 'adjustment allowance', which allows Ofgem to factor any special, unexpected costs into the price – for example, Ofgem has added the costs resulting from the spate of suppliers that failed last winter to the price cap from January. About £61 of the typical £4,279 a year bill under the current price cap is for supplier failures.

    Other costs include network, operating and policy costs

    Other than wholesale energy costs and the special adjustment allowances, the price cap is also made up of the following:

    • Network costs. This is the costs suppliers face for building, maintaining and operating the pipes and wires that carry energy to households. It accounts for about 9% of a typical bill under the current price cap.

    • Operating costs. This covers the cost of billing and metering services, including the cost of the smart meter rollout. It accounts for about 6% of the current price cap on typical use.

    • Policy costs. This is to support Government environmental and social schemes to help households save energy, to reduce emissions and to encourage homes to get solar panels and similar renewable energy tech. It accounts for about 3.5% of a typical bill under the current price cap.

    • VAT. For energy, this is set at 5%, which is added to the price of all tariff rates. 

    • Earnings. This is the part of the bill that is profit for a supplier – Ofgem says it allows for a 'fair rate of return' for suppliers. It accounts for around 2% of a typical bill under the price cap.

    • Payment method allowance. This is to cover the cost of taking monthly direct debits, billing people quarterly by cash, cheque or direct debit, or billing by prepayment. How much this is depends on the payment method – for those on the monthly direct debit cap, it's under 1%. For those paying by quarterly direct debit, cash or cheque, it's a lot more.

    • Other costs. There are a few other small costs Ofgem accounts for, such as what's known as a 'headroom allowance', which is supposed to help with any unexpected costs.
  • How long will energy prices be capped for?

    When it was first introduced, the cap was set to remain in place until at least the end of 2020, although the Government has announced its intention to allow the price cap to be extended beyond 2024 if required.

    The energy price guarantee, which provides a discount on what we would be paying under the price cap is set to last until the end March 2024.

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