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Energy price cap explained

By Jonathan Leggett
published: 27 September 2022
Read time: 5 minutes

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..

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

  • Amid the surging cost of living, the government has stepped in and introduced the Energy Price Guarantee, effectively capping energy prices at £2,500 for the average household from 1st October. This supersedes the previously announced cap of £3,549, which was due to come into force in October

  • The Energy Price Guarantee' will remain in place for the next two years until 1st October 2024, bringing some respite to households struggling with the cost-of-living crisis

  • The news marks an increase of £529 (26%) from the current cap of £1,971 and means that customers not on a fixed deal will have received an average £1,223 (95%) rise over the last 12 months

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).

The energy cap solely applies to customers who are on a standard variable tariff (SVT), which over recent years was usually a provider’s most expensive tariff.

However, due to the challenges in the energy market, SVT’s are now the ‘cheapest’ tariffs and around 80% of all UK households are on an SVT.

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.

An increase in wholesale energy costs as global demand recovered from Covid lockdowns sparked the initial rise in prices.

However, the Russian invasion of Ukraine and the ongoing war has put huge pressure and uncertainty on gas suppliers as we head into the winter. The result of this has been energy prices soaring to levels never seen before in the UK.

After the government intervened with the Energy Price Guarantee to prevent the cap rising to £3,549, the cap will now rise to £2,500 from 1st October for the average household on a dual fuel tariff, paying by direct debit. The Energy Price Guarantee will remain at this level for the next two years.

The prospect of looming price hikes 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 every household will receive £400 credit to their energy bills in six instalments, starting from October.

Low-income households who receive state benefits qualify for an extra one-off payment of £650, which will be paid in two instalments.

Further assistance is also available for pensioners and people who receive disability benefits.

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Our expert says...

"The UK energy market has seen unprecedented price rises and challenges in the last year and with world energy markets remaining high, we have seen the UK Government introduce a new ‘Energy Price Guarantee’ to cap prices for a period of 2 years from October 2022.

"However, whilst price savings may not return for a while, there are ways we can help to reduce their energy bills, including a better understanding of how we use energy (have a smart meter fitted), energy efficient heating or a specific electric vehicle tariff if you drive an EV.

"Moneysupermarket will be working to make sure we can support you in becoming more ‘energy smart."

How the cap has changed over time

The price cap was introduced in January 2019 and is reviewed quarterly. 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.

Before the current unprecedented market conditions, the cheapest tariffs in market have been mostly £200 or more cheaper than the price cap level and are usually fixed deals, providing peace of mind on prices for 12 months or longer.

Despite the government’s intervention to help customers with energy bills, they remain at unprecedented highs and it is hoped that we can see a return to competitive fixed deals before too long, providing consumers with the option to ‘switch and save’.

Should I switch energy suppliers right now?

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

However, most suppliers are not currently offering tariffs for new customers and those that may be available for existing customers are likely to be higher even than you would be paying on your current standard tariff. If you need that peace of mind then it may be worth speaking to your supplier.

We’d recommend that you run a comparison on our site now to look at any options.

You can always just leave us your email and we’ll get in touch when there may be more options for you.

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, the new round of price rises will be hitting at the point many of us turn our heating on as temperatures start to drop. But the good news is that help is at hand.

As well as capping the average household’s bills at £2,500 for the next two years, the government has also offered some further assistance. This comes in the form of:

  • £400 credit for all households, starting from October

  • £650 one-off payment to low-income households in receipt of state benefits

  • £300 one-off payment for pensioner households, who already receive winter fuel allowance

  • £150 one-off payment for people who receive disability benefits

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.

Need some more pointers? Read our simple tips for being more energy-efficient.

Sources and methodology

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