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01 Oct 2019
Adam Bate Confused.com

The energy price cap explained

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 father and son comparing energy tariffs to save money

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?

Since 1 April, the energy regulatory Ofgem has imposed a price cap. This means that millions of households will be protected against unfair rises in the cost of gas and electricity.

Thanks to the cap, the typical home should pay no more than £1,162 a year for their energy – slightly less than the previous limit of £1,179.

But this cap only applies to customers who are on their provider’s default energy tariff.

And as Ofgem itself points out, most households are likely to be able to pay even less for their energy every year by switching to a more competitive fixed-term deal.

 

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

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