The energy price cap 2022: what does it mean for you?

In January 2019 default tariff energy prices in the UK were capped for the first time by the energy regulator, Ofgem. This was so households weren’t paying extortionate amounts for energy.

This year, the price cap has increased to £1,971 as a result of the rising cost of  fossil fuels. For people on their supplier's default tariff, this means energy bills could increase by £693 per year. Here we explain the energy price cap and what it means for you.

 hand turning down thermostat
 

What is the energy price cap?

Since 2019, the energy regulator Ofgem has imposed a default energy price cap on energy prices for customers on a default or standard energy tariff.

In 2017, Ofgem also brought in a price cap for those with prepayment meters

Each price cap is designed to protect customers from paying a high price for their energy.

The price cap changes happen twice a year. Once in April for spring and summer, then again in August for winter.

 

How has the price cap changed this year?

In April 2022, the default energy price cap will rise from £1,277 to £1,971,  increasing household energy costs by £693 per year.

The price cap for those with prepayment meters will also increase by £708 from £1,309 to £2,017.

This is an increase of 54% for the energy price cap, and could affect around 22 million people

Ofgem has said this is due to an unprecedented increase in the wholesale cost of fossil fuel.

Jonathan Brearley, the Ofgem chief executive, said:

"We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can."

"The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas. 

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

   

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.

 

What is the Prepayment Meter Price Cap?

A prepayment meter is a kind of pay-as-you-go system for energy. A little like a pay-as-you-go mobile phone.

Ofgem introduced the Prepayment Meter Price Cap in 2017.

According to Ofgem, there are around four million households in the UK with a prepayment meter. 

In April this year, the Prepayment meter price cap will rise by £708 to £2,017. 

The new price cap could affect you if you have a prepayment meter. If you want to switch to a credit meter it could be worth speaking to your energy supplier to see if you’re eligible.

Or if you’re in rented accommodation, it might be worth chatting to your landlord to see if they’re willing to switch.

 

How is the energy price cap calculated?

Ofgem, the regulator for the energy industry, sets the energy price cap.

They base the cap on a few different factors. Some of them are:

  • The cost of fossil fuels

  • Operating costs – for example, the cost for suppliers to send out tradespeople to fit smart meters or conduct general maintenance work

  • Network costs – this covers building, operating and maintaining the pipes and wires that supply energy to your home

  • Policy costs – for example government schemes to reduce emissions.

To see the full list of factors, visit the Ofgem website.

They review the price cap twice a year, taking into account these factors and more.

 

Is the energy price cap 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 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.

 

How can I pay less for my energy?

At the moment, the energy market unpredictable and there isn't much to be had by way of savings. But there are still ways you can save on energy, for example:

  • Turn down your thermostat
  • Never leave appliances on standby
  • wash your clothes at a lower temperature

Read our energy efficiency tips for more ideas. You might also find out home warming hacks useful to keep your home warm this winter.