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Energy Price Cap The energy price cap explained

Find out what the latest price cap means for your energy bills and what you can do about it.

REMEMBER: the price cap figure is based on the maximum a supplier can charge if you are an ‘average user’, so if you use more, you pay more..

Last updated 3rd February 2022 • 8 min read

What's the latest price cap and what does it mean for me?

  • The latest cap was announced on 3rd February, with Ofgem raising the level by 54% to £1,9711 for the average bill
  • Driven by an unprecedented rise in wholesale costs, this is £693 higher than the previous cap. Consequently, consumers who are relying on the price cap to ‘protect them from overpaying’ have received an average £833 rise over the last 12 months.
  • Government has announced plans for rebate scheme to ease the burden of higher bills

The energy regulator Ofgem sets the energy price cap in a bid to limit the price a supplier can charge you per unit of electricity and gas. The unit measure, which your energy bill is calculated from and which you may see on your bills, is a kilowatt-hour (kWH).

However, the energy cap only applies to customers who are on a standard variable tariff (SVT), which is usually a provider’s most expensive tariff. If you switched to a fixed deal over a year ago and that has come to an end, you will be moved to the standard tariff or “default tariff.” If you have not switched at all, you will remain on the SVT.

The price cap does not limit your total energy bill, the figure above is just an indication for the ‘average user’ – if you use more you pay more.

On 3rd February 2022, Ofgem’s latest price cap was announced. An increase in wholesale energy costs as global demand recovers means the new cap has risen sharply by £693. The new cap is set at £1,971 per year.

The price cap for prepayment tariffs is also increasing by £708, to £2,017 per year.

The latest rise of 54% will naturally have you concerned about the impact on your bills, which have already risen significantly in the last few months.

To support consumers, the government has announced a £200 energy bills rebate scheme. How this will work is currently still under review, but the scheme is expected to launch October 2022.

“The electricity and gas we use in our homes is the same used by our neighbours, friends and family, yet so many people don’t check to see if they could move to a better deal and pay less. Over recent years it has been easy to switch to a cheaper tariff with also maybe better service and from a supplier who sources electricity from renewable sources.

“However at the moment (February 2022) the energy market is seeing unprecedented price rises which may mean staying put for the time being is the best thing to do. Run a comparison on Moneysupermarket and if you can’t currently save, then leave your email and we will let you know when you can.”

How the cap has changed over time

 

The cheapest in market tariff switchable via MoneySuperMarket on the effective date of each price cap

The price cap was introduced in January 2019 and is reviewed every 6 months. While it is intended to ensure customers pay a fair price for their energy, it is only a cap on the most expensive tariffs and does not safeguard you against price fluctuations.

The cheapest tariffs in market have been mostly £200 or more cheaper than the price cap level and it’s also worth remembering that if you switch and fix, you lock in today’s price for 12 months. That means you’re protecting yourself against future price rises.

You should compare your options every year to make sure you’re on the best tariff possible. It’s estimated there are 11 million households (50% of all UK households) currently on a standard tariff who are likely to be impacted by this cap.

Should I switch energy suppliers right now?

In normal circumstances, switching is a good way to beat the price cap and save money.

However, due to unprecedented conditions in the energy market right now, we’re changing the habit of a lifetime and advising our customers that switching might not be the right thing to do at the moment.

We’d recommend that you run a comparison on our site now. If you find you can’t save, just leave us your email and we’ll get in touch when you can.

Why was the cap introduced?

The price cap was intended as a safety net for customers who do not regularly switch and who are on standard or default tariffs – typically a supplier’s most costly tariff. The aim of the cap was to make sure customers who didn’t switch still got a ‘fair price’.

Despite this, variable tariffs set at the price cap level were usually some of the most expensive deals.

What if my energy supplier goes bust?

If your provider does collapse, there’s no need to panic, as Ofgem steps in to protect customers.  

The regulator carries out a process of choosing a new supplier to ‘rescue’ the business. You can be reassured that your energy supply will continue as normal, and any credit balances will be protected. Read more here.

What if I’m struggling to pay my bills?

To make things worse, price rises are hitting just as many of us turn our heating on as temperatures start to drop.

Crucially, if you’re struggling to afford heating costs, you should contact your energy supplier as soon as possible. You may be eligible for extra help. This will depend on your circumstances but could include:

Read more here: Where to turn for help with your energy bills

Take steps to reduce your bills

Now is also a good time to take steps around your home to be more energy efficient ahead of increased energy usage during the winter months.

Simple things you can do include switching gadgets off standby, making the move to energy-saving light-bulbs, and only boiling the amount of water you need in the kettle.

Sources and methodology

All energy price cap figures are sourced from Ofgem, where comparisons have been made to the number of cheaper tariffs in the market or savings against the price cap this refers to MoneySuperMarket tariffs as of 6th August.

1 All price cap data and volume of UK households on a standard tariff provided by Ofgem.

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