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The energy price cap is the government-imposed limit on the maximum prices suppliers can charge for gas and electricity to domestic customers. This provides stability and affordability to protect consumers from excessive price increases or being overcharged.
How does the energy price cap work?
Energy price caps work by setting limits on the maximum amount suppliers can charge their customers per unit of gas and electricity they use and set maximum daily standing (fixed amount to provide customers access to gas and electricity). However, there is no fixed amount to what you have to pay. The more you use, the more you have to pay and the less you use, the less you pay.
Individuals or customers with fixed-term energy deals do not have to worry about energy price caps. While an Energy price cap is made to set a limit on the maximum price of energy, be aware that it is only applicable to gas and electricity used by households with standard and default tariffs.
The energy price cap aims to encourage fair competition among suppliers and protect consumers from excessive costs. The government also ensures the cap’s effectiveness through periodic reviews in other to ultimately benefit domestic consumers and the energy market
What are the Unit rate and standing charge for energy price cap?
The average unit rate of energy price cap from January 1 to March 31st
Unit Rate | Standing charge | |
Electricity | 28.62p per kilowatt | 53.35p per day |
Gas | 7.42p (Kwh) | 29.60p per day |
Average unit rate and standing charge price cap from April to June
Unit Rate | Standing Charge | |
Gas | 6.04p per kWh | 31. 43p per day |
Electricity | 24.50p per kWh | 60.10p per day |
What is an Energy Price Guarantee?
An energy price guarantee is a commitment made to protect consumers as a part of a fixed-term energy deal. This guarantee protects customers, allowing the price they pay for gas and electricity to remain unchanged for a specified period.
That is both your energy rates and standing charge will remain the same price during the guarantee period providing you with a stable price and protection against unprecedented price hikes.
The energy price guarantee was introduced in 2022 when Ofgem predicted the price level to be higher in 2023. The guarantee was made to serve as a safety net to benefit the customers to have a stable price and also suppliers, enabling them to offer energy deals at fixed prices to customers.
With an energy guarantee, consumers are encouraged to switch to fixed-term deals as they get to save money while enjoying favourable rates. While these are great benefits for customers, there could be a downside to it especially for customers in fixed-term deals, as it may come with some conditions like early exit fees if you want to switch suppliers before the end of your contract. However, be sure to review any energy deal you are signing up for to ensure it meets your needs.
How do I know if I’m on a Priced Cap Tariff?
The price cap tariff is known as the default tariff. They are also known as standard variable tariffs. A tariff you did not voluntarily choose to switch to whether you make payment through direct debit, cash or prepayment method. You will automatically be on a priced cap tariff if any of the below applies to you.
- You want to move homes: When you are moving home, your current tariff ends and you inform your supplier of your moving. (While some suppliers do not allow fixed tariff transfer some allow. Check-in with your supplier). At your new home location, you have to contact the existing supplier to inform them of your moving in. From the moment you move out ending your fixed tariff, you are automatically placed on a priced cap tariff also known as default.
- You have never switched your supplier: If you have never switched your energy supplier, chances are you are on your supplier’s standard tariff.
- You were on a fixed deal and have not switched again: You were previously on a fixed deal tariff which has ended and you haven’t switched since then you are on a default tariff. This is usually the case once a fixed tariff ends, you are automatically placed on a price cap tariff if no actions are carried out.
- Your supplier went bust: If at any point you sign up with s supplier that ends up going bust, your existing tariff will automatically end. While you wait, you will be connected to another provider and be placed on the supplier’s standard tariff which is the priced cap tariff.
What is the Price Cap Assessment Period?
The cap price assessment period refers to the timeframe during which government agencies evaluate various factors to determine the maximum price cap for energy suppliers.
The price cap changes every three months which is January, April, July, and October. Making the assessments to be conducted from time to time to ensure that the price cap reflects current market conditions and factors affecting energy prices.
Energy Price Cap and Assessment Period
Price Cap Period | Date | Assessment Period |
Current price cap: 1st of January to March 31st 20224 | November 2023 | 18th of August to 15th of November 2023 |
New price cap: 1st of April to 30th of June 2024 | 23rd of February 2024 | 16th November 2023 to 15 February 2024 |
1st July to 30th September 2024 | 28 May 2024 | 16 February to 16 May 2024 |
October 1 to 31 December 31 2024 | 27 August 2024 | 16 May to 16 August 2024 |
How is the Price Cap Calculated?
Calculating the price cap involves considering various costs that energy supplier incurs. The primary cost is wholesale energy which represents 50% of a typical bill for a tariff set at the maximum allowed under the current price cap from January 1 to March 31 2024. Wholesale energy prices fluctuate regularly which leads to significant changes in the price cap every three months.
Other costs include maintaining the infrastructure(pipes and wire) for gas and electricity distribution and also operational expenses related to customer billing and metering services.
There are some unexpected costs the government has the right to include which are usually unforeseen expenses into the Price Cap cost. This includes an “adjustment allowance” which allows Ofgem to be accountable for specific unexpected costs in the pricing structure. Apart from wholesale energy cost and adjustment allowance, it also includes costs like;
- Operating cost: This cost aspect covers billing and metering services. Which also includes the cost of the smart meter rollout.
- VAT: Energy suppliers already include VAT in the tariffs they offer to consumers. This means the price quotes to consumers already include VAT which is paid as part of their energy bill. The maximum allowed price under the energy price cap also includes a VAT to ensure consumers are protected from excessive VAT-inclusive prices.
- Policy Costs: This covers expenses like regulatory expenses, government mandates and industry regulations associated with energy. These costs include taxes or charges the government imposes on suppliers like the renewable energy subsidy. Also, energy policy aims to achieve social and economic objectives like affordable energy and consumer protection which is also calculated in the Price Cap.
- Network Costs: It covers costs like maintaining and operating the infrastructure that deals with the distribution of gas and electricity. These activities include repairing and inspecting pipelines maintaining electrical substations, upgrading grid equipment and ensuring the safety of energy within the household.
- Payment Method allowance: This relates to the cost of the different payment methods customers use in paying energy bills. Various suppliers offer various payment methods such as direct debit, prepayment, cash, cheque or bank transfers. Each payment method can incur different processing costs. Therefore, this allowance is calculated with the price cap to ensure suppliers recover these expenses while maintaining rational pricing for their customers.
- Earnings: That is “profits” for suppliers. This is an important part of the price cap calculations. As it ensures suppliers get a reasonable return on investment in upgrades and operations. The typical earnings are based on the energy industry benchmark and regulations to ensure a balance between supplier’s earnings and consumer affordability.
- Other Costs: Other costs are allocated which is known as headroom allowance. This cost also assists with any unexpected costs.
Does the Payment Method Affect the Price Cap?
The Price Cap varies based on the payment method used: monthly Direct Debit customers have a typical annual cap of £1,928 until March 31, 2024, which reduces to £1,690 from April 1 to June 30, 2024, reflecting Ofgem’s revised usage estimates. For cash, cheque, or quarterly Direct Debit payments, the annual cap is £2,058, decreasing to £1,796 for the same period.
Prepayment customers have a cap of £1,917 annually, lowered to £1,643 from April 1 to June 30, 2024, with a government-mandated discount on standing charges until March 31, 2024. Starting April 1, 2024, there will be no discount, but Ofgem will align standing charges with Direct Debit payments.
What is a Prepayment Meter Cap?
A prepayment meter cap refers to a limit set on the maximum amount that energy suppliers can charge customers who use prepayment meters to pay for their gas and electricity. The cap aims to protect consumers using prepayment meters from excessive charges and ensure they are not unfairly priced compared to those using standard credit meters. Ofgem independently reviews a separate cap for prepayment tariffs, distinct from the cap for standard variable tariffs (SVTs)
Am I on a Price Cap Tariff?
The Price Cap is applicable to default tariffs, also known as standard variable tariffs (SVTs), regardless of whether you pay via Direct Debit, cash, cheque, or prepayment. You are likely on a price-capped tariff under the current energy crisis if:
- You have never switched your energy tariff and have always been on your supplier’s standard tariff, thus protected by the Price Cap.
- You were on a fixed deal but have not actively switched again, leading to automatic enrollment into a price-capped tariff after the fixed period ends.
- Your supplier has gone out of business, resulting in a switch to the new provider’s standard tariff, also protected by the Price Cap, chosen by Ofgem.
- You moved homes, and upon notifying your current supplier, you will be placed on a default tariff controlled by the Price Cap until you set up a new account with the supplier at your new residence.
Controversies surrounding Energy Price Cap
The controversies revolve around several issues;
- Impact on Competition: The introduction of the price cap has hindered competition among energy suppliers discouraging innovations and investment in new technologies. The price cap does not encourage suppliers to offer better tariffs to customers as most customers are protected in the price energy is offered. Which in the long run could lead to no competition among energy suppliers limited choice to consumers and in the long run lower service quality.
- Sustainability and Investment: The price cap can weaken sustainability goals and investments in renewable energy. As the price cap could prevent energy suppliers from making long-term investments in sustainable energy systems.
- Do not offer stability: Even with its presence, the cap is still susceptible to fluctuations due to wholesale prices, distribution costs, and other factors. Creating a false sense of stability to customers that they are protected from fluctuating costs.
How has the Price Cap Changed over the years?
The Energy Price Cap is now reviewed every three months compared to the former revision of every six months. This review depends on average wholesale prices in the preceding months up to each revision. As a result, the cap price, based on typical use has fluctuated since its introduction.
It’s also important to note that from October 2022 to June 2023 consumers have not been able to pay the energy full price amount because the prices were discounted under the Energy Price Guarantee Scheme.
Financial Support for Energy Bills
For consumers who find it hard to pay their energy bills, there are available support options for general cost-of-living payments for individuals on certain benefits. These include;
- Pensioners: They can receive a sum of Euro 300. Which will be paid by the winter of 2024.
- Disability benefits of 150 which is paid in summer.
- Certain means-tested benefits are to be paid of 900euro which will be paid in spring 2024.
- Financial help from household support funds through the local council.
If you are unable to benefit from any of them, you can consider;
1. Warm Home Discount
This is a government programme that provides a one-off rebate of €150 to the energy bills of eligible individuals.
Warm Home Discount Eligibility
Core Group 1: You are eligible for the warm home discount if you benefited from the Guaranteed Credit Element of Pension Credit in 2023 or the Savings Credit. However, it’s important to check if your energy supplier participates in this program and also ensure that your name and your partner’s name are on the energy bill to receive the discount.
Core Group 2: This is known as the “broader group”. These are individuals who do not fall into Group 1 but are qualified for the discount. The requirements for eligibility for this group include; specific income-related benefits, tax credits or your household should meet the “high energy cost rule” which is used to identify homes that can benefit from this discount. However, be mindful that each supplier has its own eligibility criteria and limits on the number of discounts provided.
Suppliers that offer Warm Home Discount
Here is the list of some suppliers that offer warm home discounts;
- Boost Energy
- Ecotricity
- Good Energy
- London Power
- Shell Energy
- Tomato Energy
- OVO Energy
- Scottish Power
2. Winter Fuel Payment
This is also referred to as Winter fuel allowance or heating allowance. It is an annual tax-free allowance provided by the government to help certain individuals pay for their heating during winter. This allowance ranges from €250- €600 with an additional cost of living payment which varies from €150-€300 based on certain benefit criteria;
- Pension
- Income support
- Income-based jobseeker allowance
- Income-Related Employment and support allowance
Eligibility for the Winter Fuel Prepayment
You are eligible for Winter FuelPayment if;
- Born on or before 25th September 1957
- You have been living in the UK for at least one day during the week of 19-25 September 2022
3. Cold Weather Payment
It is a government allowance given when temperatures in your area reach zero degrees or below for seven consecutive days Eligible individuals receive £25 for each seven days, and this payment does not affect other benefits or require repayment. It is received within 14 working days and is deposited directly into the recipient’s existing bank account.
What is the Eligibility for Cold Weather Payment
You may be able to access the Cold Weather grants if you receive the following benefits
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Pension Credit
- Income Support
- Universal Credit
- Support for Mortgage Interest.
Energy Saving Tips to save Energy
Here are some energy-saving tips that can help save energy as a domestic energy user.
1. Understand how much Energy each appliances use
It’s important to understand how much energy each appliance in your home uses. By understanding the energy consumption of each of your domestic appliances, you can decide how exactly to reduce your energy usage and maintain a stable energy price. To achieve this;
- Conduct an energy audit: The first step to understanding your appliance’s energy is to conduct an energy audit. Conducting one gives you an insight into which appliance consumes the most energy. This can involve using energy monitoring devices to track usage and inspecting the appliances.
- Unplug or switch off standby mode: Appliances in standby mode can still consume energy. Unplug the appliance or make use of power strips to completely cut energy when not in use.
- Check appliances label: Appliances like refrigerators, washing machines, dishwashers are accompanied by energy consumption labels that indicate them in (kWh) kilowatt-hours. Use this label to estimate how much energy your appliance consumes.
2. Wash more clothes at once
To maintain your energy price, you may want to reduce the amount of time you load the machine weekly. Instead of washing them bit by bit, try to wash them at once. Also, you may want to try washing in a colder setting from time to time to reduce costs.
3. Alternate your Appliances
Instead of running all your appliances at once, alternate them to save energy. If you have an air fryer and an oven, pick an air fryer over the oven.
While an air fryer consumes more energy initially, it is faster compared to an oven which can take forever and in the long run consumes more energy than an air fryer.
You can also alternate tumble drying with airdrying. The tumble dryer is a very energy-consuming appliance and you can easily save on drying by airing your clothes outside. Run the tumble dryer only when necessary.
4. Maintain a cool freezer and fridge temperature
According to the Food Standard Agency, the typical temperature is Fridge at 5°c and freezer at 18°c. Trying to set a colder temperature does not make a difference to the items in the fridge and freezer but just increases your energy price over time.
To maintain the standard temperature, get a fridge thermometer to check the temperature to ensure they are at the right temperature.
5. Reduce the shower time
Reducing the number of times you run the shower helps reduce your water usage and in return reduces your energy price, especially for those on water meters. Cutting shower time typically reduces energy costs this is because when you use less water you heat less water. To make this easier, you could get a water-saving shower head to reduce your water usage.
6. Look out for your energy-saving bulb
All energy-saving bulbs are not the same so you might want to switch to LED lighting. Led lighting is great, you could also consider switching off lights when you are not in the room or when not in use.
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