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What does the energy price cap mean - and what do you need to do?

Confused about the new price cap and bills going up? We help explain what it means for households.

By Esther Shaw

Published: 23 August 2021

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Save money on energy 

Many households are going to face energy bill hikes from October when the new price cap takes effect.

Regulator Ofgem announced in early August that the price cap is set to rise.

It is due to go up by £139 from October 1, taking it up from the current £1,138 to £1,277. This is the highest since the cap launched back in January 2019.

The price cap was intended as a safety net for customers who do not regularly switch and who are on standard or default tariffs. These are typically a supplier’s most costly tariff. The aim was to limit the amount providers can charge for a unit of gas or electricity.

But there are concerns suppliers are seeing this cap as a ‘target’ as opposed to a ‘limit.’ As a result, relying on this price cap can mean you’ll end up overpaying.

As a consumer on a standard tariff, you are likely to be able to make bigger savings by shopping around and switching to a fix. Here we take a closer look.

What’s been happening to energy prices?

Energy costs have risen sharply over the past six months. There are several factors contributing to this, including a surge in wholesale energy costs, more domestic usage during lockdown – plus UK business energy increasing their consumption as restrictions have come to an end.

How many households will be affected?

Figures suggest around 11 million households are on standard or default tariffs and will be affected by the new price cap.

Those who have never switched supplier are likely to be on this type of tariff. Customers are also automatically moved on to a standard or default rate when their fixed deals end.

Why is the new price cap bad news for households?

Consumers who rely on the price cap to protect them from overpaying, have already been hit hard this year – and are about to get hit again.

Ofgem sets the price cap twice a year. (The last one was introduced on April 1 – an increase of £96, which took the cap up to £1,138. The latest £139 increase takes the cap to £1,277).

Households on standard or default tariffs saw a 9% rise in the price cap in the spring, and now face a 12% increase. This means a total hike of 21% since the start of the year. According to MoneySuperMarket, this works out as an additional £235 per year, or £20 extra per month, for the average user.

To make matters worse, this latest rise is going to hit households at the start of October, just as many of us turn our heating on as temperatures start to drop.

Switch to a fix

As a consumer, now is the time to take action, ahead of the October bill hike.

The best way to minimise the impact of these price rises is by switching supplier and moving to a fixed-rate tariff.

With a fix, you lock into the price you pay per unit of gas or electricity for 12 or 24 months – protecting you from market volatility and future price rises.

The cheapest tariffs in the market can be £200 or more cheaper than the price cap level.

In fact, you could save £200* on your bills by comparing tariffs with MoneySuperMarket.

Making a move now also makes good sense ahead of the colder winter months when households tend to use more energy heating and lighting their home.

How easy is it to switch?

Switching is super-simple and it will only take a matter of minutes to find out what deals are available.

Head here and type in a few details about your address, current supplier and usage. You can then find a cheaper fix to move to. Thanks to the Energy Switch Guarantee, there won’t be any disruption to your service. Your new provider will take care of everything, and you should be on your new tariff within 21 days.

What if I’m a customer on a prepayment meter?

Unfortunately, there’s no better news for customers on prepayment tariffs. These consumers will face an even bigger increase of 13% from October 1. This is equivalent to £153 per year for the average user, according to MoneySuperMarket. It means you’ll now pay £1,309 a year.

What if I’m struggling to pay my bills?

If you’re finding it hard to pay your bills, contact your energy supplier as soon as possible.

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

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.

Get more tips here.

 

*Based on savings made by 30% of consumers that applied to switch via MoneySuperMarket, Aug ’20 – Jul ’21, with the estimated annual cost adjusted for the Oct ’21 Ofgem price cap. GB only.

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