The energy price cap explained
In January 2019 default tariff energy prices in the UK were capped for the first time by the energy regulator, Ofgem.
Energy tariffs can be confusing at the best of times, so here we explain the energy price cap and what it means for you.
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What is the energy price cap?
In response to pressure from consumer groups and the public over the last few years, the UK government directed the energy regulator Ofgem to do something to control the spiralling costs of energy in the UK.
Ofgem introduced the first energy price cap on prepayment tariffs in 2017 and followed this with the cap on default tariff prices in 2019. Their ultimate aim is to make energy prices fairer for consumers.
The default tariff price cap applies to customers on a standard variable contract – around 11 million households in the UK. These households include those customers who've never switched their energy tariff. It also includes those who switched to a fixed term deal and were now back on the default tariff after their fixed term had ended.
The cap established a maximum price that can be charged per unit of energy, and a maximum to how much can be charged per day as a standing charge. The cap is reviewed every six months and will rise or fall based on the costs that Ofgem calculates suppliers need to spend to get energy to your home.
READ MORE: Energy price cap falls but is it enough?
How does the energy cap affect me?
The price caps don’t limit how much you’ll pay for your energy bills, just the rates you pay for your energy. So if you start using more gas and electricity, you’ll still be charged more per month for the extra you’re using.
If you’re on a fixed rate tariff, you won’t be affected by the energy cap. Most fixed rate tariffs are already charged at a rate below the cap. You should keep a close eye on the end date of your fixed term, though. When it ends, you’ll be moved to the standard variable rate and the energy cap will affect you from this point on.
If you’re on a default tariff and the cap is lower than your current cost per unit of energy, your supplier will have to lower their rates. In the same way, if the cap levels go up, your supplier is likely to increase your rates to these levels, so you'll be charged more.
READ MORE: Your energy questions answered
What is the current energy price cap?
The two price caps Ofgem have set are:
|Default tariff price cap - Introduced on 1 January 2019|
|Default tariff price cap - Introduced on 1 January 2019 Covers customers on standard variable tariffs (the supplier’s ‘default’ tariff)|
|Prepayment price cap - Introduced on 1 April 2017|
|Prepayment price cap - Introduced on 1 April 2017 Covers customers on a variable prepayment tariff (sometimes known as ‘pay as you go’)|
The current levels of the respective price caps are:
|Default price cap|
|Default price cap £1,179 per year from 1 October 2019|
|Prepayment price cap|
|Prepayment price cap £1,217 per year from 1 October 2019|
So the energy price cap is a good thing?
Undoubtedly the energy price cap is a step forward in that it protects millions of energy customers from paying extortionate prices for their energy.
Most of these customers have never switched their energy supplier and might be unaware of the options available.
Since these customers invariably include the less well off, the elderly and the less able, any measures to protect them against rising prices must be a positive step.
However, the price cap by definition is the maximum that a customer can pay for their energy. This means that there should be many ways of paying far less for that same energy.
Ofgem recommend that even if the price cap applies to you, that you should still shop around to make sure you are saving as much money as you can.
There are likely to be many offers that could save you even more money on your gas and electricity than staying on a standard variable default energy tariff covered by the price caps.
Read more: the supplier switching process