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Energy price cap explained

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Written by  Jonathan Leggett
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Reviewed by  Vanessa Tsai
5 min read
Updated: 25 Aug 2023

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

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?

  • Energy bills will fall to £1,923 from October for the average household on a dual-fuel standard variable tariff (down from £2,074 currently). This represents a 7% drop

  • Average bills for pre-pay customers, defined as those don’t pay for their energy by direct debit and use pre-pay meters, will also fall by a similar amount to around £1,949. They currently stand at £2,077

  • The arrival of lower consumer energy bills follows a steep decline in wholesale prices. However bills still remain substantially above pre-pandemic levels when the average household’s energy bill was around £1,000

  • Changes in the market mean we’re now able to offer a limited switching service, which could save you money or let you sign up to fixed rate to insulate you from any further price rises

  • At its peak in January 2023, the cap rose to £4,279. But the Energy Price Guarantee (EPG), which effectively temporarily replaced the cap, meant customers were protected and the average household paid £2,500 annually for their energy

  • The EPG has now been scrapped, with the price cap now once again the key determinant for household energy bills

  • As a result, households will likely be paying more for their energy next winter than they did last winter, despite falling wholesale prices

Energy bills will fall by 7% in October, the energy regulator has announced, bringing some welcome relief to Britons wrestling with the worst cost-of-living crisis for decades.

The latest reduction, which follows a 17% drop announced in July, will cut the average bill for households currently on a single variable tariff (STV) and who pay by direct debit from £2,074 to £1,923.

Pre-pay customers’ bills are yet to be officially determined, due to the government’s policy of applying a further cap on this type of tariff to bring them in line with the debit-debit price cap. But we know that they’re due to fall by a comparable amount.

The introduction of a lower cap by the energy market regulator Ofgem has sparked hope in some quarters that the worst of the energy crisis, which has fuelled soaraway inflation for everything from groceries to broadband, could be over.

But it’s not all good news. The end of the Energy Price Guarantee (EPG), which effectively replaced the cap to protect Britons of the worst of energy price inflation, at the end of June means the government will no longer subsidise consumers’ energy bills by £66 per month.

The result is that although bills will fall this autumn, it’s expected that next winter most people will pay more for their energy than they did last winter. This is because although rates are cheaper, the government subsidy has been removed.

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.

Until July, the government continued to compensate 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 now eased, with the result that wholesale energy prices have fallen.

But there are still many other global issues that impact our energy pricing. So prices still remain around double what they were before the pandemic.


What does this mean for me?

It’s estimated that about 29 million households are affected by the latest price cap, which covers the period from 1st October to 31st December. That includes four million pre-pay customers.

The news that prices are stabilising also raises the possibility that more suppliers could begin offering switchable fixed-rate deals again soon, providing some certainty over energy bills for Britons.

Our expert says...

"The reduction in the price cap means that there should now be room for energy providers to offer fixed tariffs that undercut the cap. This is because they base their prices on future costs of energy and these are currently lower than the price cap, which is calculated retrospectively by looking back at the last quarter. 

"The good news is that the outlook for the market is continuing to improve. So much so, that we expect there to be some good opportunities to save money and fix a tariff for 12 months, giving lower energy prices now and protection over the next winter. 

"In the meantime, it’s vital you continue to take steps to cut your bills. Try and reduce your consumption and if you’re struggling make sure you let your supplier know as soon as possible.

"Here at MoneySuperMarket will be working hard to support you and we will be pushing energy suppliers to provide everyone with the opportunity to save money." - Emma Spencer, Energy expert

Should I switch energy suppliers right now?

In normal circumstances, switching has been the best way to save money on energy bills. But as the world lurched from crisis to crisis and energy prices soared in recent years, latterly that’s not been the case.

That’s because suppliers responded to sky-high wholesale energy prices by withdrawing tariffs for new customers, while those available for existing customers were likely to be even higher than you’re paying on your current STV.

In turn, MoneySuperMarket and other price comparison sites were forced to suspend switching because we could no longer save our customers money.

With clear signs that conditions in the energy market are improving at last, we’re now able to offer a limited switching service that may be able to save you money or allow you get the peace of mind knowing you’re insulated by a fixed rate.

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. 

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:

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.