The energy price cap is the maximum price energy suppliers are allowed to charge customers for their standard variable tariff. This is the default tariff you get from an energy supplier.
The price cap is set every three months by the energy regulator, Ofgem. The next update to the price cap will be 1st April 2024.
Here are some links to the sections in this blog:
- When is the next energy price cap announcement?
- How much is the current energy price cap?
- Will the price cap go up or down?
- How your energy usage affects your bills
- Will all suppliers change their prices?
- What's a variable tariff?
- I'm a One Utility Bill customer. What do I need to do?
What is the energy price cap and how does it affect bills?
The price cap applies to the unit price of energy, which is the amount you pay per kWh (kilowatt hour) of energy you use.
- The price cap is usually announced and reported in a way that translates easily into daily life. This is why you usually see the annual cost of typical energy bills for the average household in headlines.
- The average household Ofgem uses to announce average energy prices is a 2-3 bedroom property with 2-3 people living in it.
- Most headlines focus on dual fuel households, which means households that use both electricity and gas power in their homes.
- In theory, the price cap prevents customers from being impacted too severely by changes in the energy market, but as we saw during the energy crisis that theory doesn't pan out in extreme circumstances.
What is a kilowatt hour?
A kilowatt hour is a unit of energy. Both gas and electricity are measured in kWh, and you're billed by suppliers for each kWh you use.
According to Ofgem, one kilowatt hour (kWh) is the amount of energy it would take to power a 100-watt lightbulb for 10 hours or a fridge-freezer for 26 hours. An electric oven uses 2kWh every 30 mins.
When will Ofgem announce the next price cap?
The next price cap will come into effect on April 1st 2024, and prices are predicted to come down.
Changes will be announced at the end of February 2024, to give energy suppliers and customers time to prepare for the change. We'll update this blog ASAP with the new gas and electricity prices, and if you're a One Utility Bill customer on a variable tariff, you'll get at least 30 days notice of price changes because of your bills.
How much is the energy price cap right now?
From January 1st - March 31st 2024, the price cap per unit of gas and electricity are:
- 28.62p per kWh of electricity, and 53.35p daily standing charge
- 7.42p per KWh of gas, 29.6p daily standing charge.
That puts annual bills for a typical household at £1928 a year. However, suppliers will charge customers per unit, so everybody's bills will look different depending on how much power they use.
Is the next price cap predicted to go up or down?
Information from leading energy analyst Cornwall Insight, predicts that the price cap will decrease unit rates for energy by around 14% in April 2024. This number was reported on 20th Dec 2023, and is likely to change.
These are only predictions based on wholesale prices, predicted prices per unit of gas and electricity based on energy market data. It could turn out to be incorrect when the new price cap is announced. We'll update this blog ASAP after the price cap change with the actual price cap figures.
How does my energy usage affect how much I'll actually pay?
If you're on a capped energy deal (as opposed to an Unlimited Energy deal) you'll be charged per unit of energy you use at the current price per unit.
- If you're on a prepayment meter, you pay for energy in advance, rather than by direct debit, so the following info isn't as relevant to you!
Your usage is measured by your energy meter, which is why it's important to submit meter readings.
- Regular meter readings mean you'll be charged based on how much energy you've actually used, rather than estimates, and so avoid overpaying or underpaying and ending up with a huge bill at the end of your contract.
Your energy meter measures how many units of energy you use, which is why the price per unit has the potential to have such a big impact on your bill.
Your monthly direct debit for gas and electricity bills is usually set at a fixed price, but you'll be charged extra if you use more than your usage limit.
Despite using similar terminology, a capped energy deal and the energy price cap aren't related.
- A capped energy deal means there's a limit to how much power you can use for the price you pay.
- The energy price cap is a limit on how much a supplier can charge you per unit of power.
Will my smart meter update automatically after the price cap?
Some smart energy meters won't update automatically, so might show the incorrect rate for energy. You'll still be billed correctly, though, and your supplier will keep trying to update it, so eventually it should reflect the actual cost of the power you use each day.
Will all energy suppliers change their prices after the energy price cap?
All energy suppliers will change the price of their standard variable tariff after the price cap. If you're on a fixed energy tariff, your price won't change because of the price cap, but you may default to the SVT at the end of your contract.
Why only people on variable tariffs will be affected by the price cap change
The energy price cap only sets the price of the standard variable tariff in response to changes in the price of energy in wholesale markets.
The price cap level varies with these changes, explaining the variable part of the standard variable tariff (SVT).
Before the energy crisis, almost everybody was in a fixed tariff. This meant that the price paid per kWh of energy would stay the same until the end of your contract, and your bills wouldn't be affected by price changes in that time. Wholesale energy prices were a lot more stable before the energy crisis, so you were unlikely to lose out too much.
- Lots of suppliers had customers on a fixed tariff when prices skyrocketed, which is why so many energy providers went out of business.
- The price their fixed customers were paying came nowhere near rapidly increasing energy wholesale costs.
- They also didn't hedge their energy, which protects suppliers from changeable energy prices.
Is it worth getting a fixed energy deal right now?
It depends on what you need from your energy bills.
- If you want predictable outgoings, a fixed energy deal is a great idea!
- You know that no matter what happens, your bills are unlikely to change for the length of your contract, which makes planning your finances a lot easier
- Unlimited Energy is another great way to keep finances extra predictable, jsyk 👀
- If you need flexibility, like the ability to end your contract at short notice, a variable tariff might be better, like you get from One Utility Bill's rolling contracts.
How will the next energy price cap affect my bills?
If you're on the standard variable tariff, the amount you pay for energy will change after the price cap. This is true every time the price cap changes, if you're on a SVT.
Your new monthly direct debit will reflect the changes per unit of energy from the date the price cap comes into effect. The price cap also affects how much energy companies can charge you for your daily standing charge.
If you're on a fixed energy contract, no need to worry, the energy price cap won't affect you 'til the end of your contract.
If you're a One Utility Bill customer
You'll always get at least 30 days notice of any changes to your monthly payments.
How the SVT affects your payment will depend on the type of package you have. You can get in touch via your customer dashboard if you have any questions.
When you sign up for your One Utility Bill package, your quote is based on the cost of energy for the whole of your contract. If the costs we base your package on turn out to be different than the price cap that's actually announced, your price will be updated.
If you're not a One Utility Bill customer, but you like the idea of a bills package, why not find out what a bills package is and how it could simplify your finances?
What does the energy regulator do?
Ofgem is the independent energy regulator for Great Britain, which is England, Scotland and Wales. Northern Ireland is covered by a different regulator.
They work with the government and energy suppliers on behalf of consumers - basically anybody who pays bills! Part of their role is to make sure energy is sustainable, customers get the right information and services from their suppliers, and manages prices with the energy price cap.
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