Energy price cap explained

REMEMBER: the price cap and Energy Price Guarantee 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?

• The Energy Price Guarantee (EPG) has been extended for three months and will continue to cap the average household energy bill at £2,500 until the end of June 2023

• The reprieve for cash-strapped consumers, which is estimated to save the average household £160, comes after the government scrapped plans to hike the EPG to £3,000 per year from April. This would have represented a 20% price increase

• The government has, however, confirmed if it will not continue with the £400 bills-discount scheme, which further reduced the strain on households over the winter months and brought average bills down to £2,100. So Britons will be paying more than they did for their energy in months to come

• By June, it's hoped that wholesale energy prices will have continued to drop, allowing energy suppliers to once again offer competitive, money-saving tariffs

• Back in early March, Ofgem announced it would downwardly adjust the energy price cap, which was effectively replaced by the EPG last year

• The cut means the price cap will fall from £4,279 in January to £3,280 in April and comes amid significant fall in wholesale energy prices

The government has partially scrapped plans to cut support for households struggling with sky-high energy bills, bringing some a measure of relief to Britons amid the ongoing cost-of-living crisis.

Under previously announced proposals, the typical annual household bill was set to rise to £3,000 in April because government help - known as the Energy Price Guarantee (EPG) - would become less generous.

However, in a major U-turn, the Chancellor has confirmed that the EPG will now remain at its current level of £2,500 until 30th June.

The bad news is that the £400 subsidy, which was given to all households during the winter months and brought the average bill down to £2,100, is being scrapped at the end of March.

The result is that Britons will pay more for their energy in months to come. But not quite as much as if the government had pressed ahead with proposals to hike the EPG.

Earlier in March, the energy regulator Ofgem confirmed the energy price cap, which is largely seen as irrelevant by consumers after the introduction of the EPG last year, would fall to £3,280 in April - down from £4,279 in January.

The cap rate, which is set by Ofgem, puts a limit on the amount energy companies can charge customers per kilowatt-hour (kWh) of electricity and gas.

The government currently compensates energy suppliers with the difference between the guarantee and Ofgem's cap.

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 put huge pressure on suppliers, meaning that energy prices soared to levels never before seen in the UK.

This has only recently started to ease, with the result that wholesale energy prices are finally starting to drop.

What does this mean for me?

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.

Rest assured we’ll do all we can to help you through.

Our expert Ashton Berkhauer says...

"The government’s move to partially continue to help Britons with energy bills brings some cheer to households struggling with the worst cost-of-living crisis for decades.

"The better news is that the outlook for the market is improving and we’re hopeful that if conditions continue to get better, we’ll soon to be able to offer cheaper energy deals and once again start saving you money.

"In the meantime, it’s vital you continue to take steps to cut your bills.

"We recommend having a smart meter fitted to better understand your energy usage, as well as investing in energy-efficient heating or loft insulation.

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

Should I switch energy suppliers right now?

In normal circumstances, switching has been the best way to save money on energy bills.

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.

We’d recommend that you visit MoneySuperMarket regularly to run a comparison and see what’s available.

Or you can always just leave us your email at our energy reminder service and we’ll get in touch when there may be more options for you.

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 some time in 2023, providing consumers with the option to ‘switch and save’.

In the meantime, you can sign up for our energy reminder service and we’ll get in touch when there may be better switching options. Just tell us your email and we'll do the rest.

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?

Crucially, if you’re struggling to afford heating costs, you should contact your energy supplier as soon as possible.

Some providers also allow you to reduce your outgoings by taking advantage of the Demand Flexibility Service.

This offers cheaper energy if you reduce your usage at designated times of day, during certain months. You can check if your supplier is signed up to the Demand Flexibility Service, or is planning to participate in future, by giving them a ring.

You may be eligible for extra help too. This will depend on your circumstances but could include:

• Debt repayment plans

• Payment breaks

• Emergency credit for those on prepayment meters

• Schemes such as the Winter Fuel Payment or the £140 Warm Home Discount

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.