What is the energy price cap and how does it affect bills?
The energy price cap is the maximum energy suppliers are allowed to charge customers for their standard variable tariff. It's set every three months by the energy regulator, Ofgem.
- The price cap is actually applied to the unit price of energy, i.e. the amount you pay per kWh of energy you use.
- It's usually announced and reported in terms that translate more easily into daily life. This is why you usually see the annual cost of energy bills for the "average" household in headlines.
- 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 didn't pan out in extreme circumstances.
During the energy crisis, unprecedented changes in the energy market, and wholesale energy prices in particular, meant other measures were added to keep energy bills down. They still reached unprecedented highs, despite the steps taken, and now the price cap changes every three months as a result of wholesale prices changing so often.
When will Ofgem announce the next price cap?
The next price cap will come into effect on October 1st, 2023.
It'll be announced in late August 2023 to give energy suppliers and customers time to prepare for the change.
How much is the energy price cap right now?
From July - September 2023, the price caps per unit of gas and electricity are:
- £0.30 per kWh of electricity
- £0.08 per KWh of gas.
That puts annual bills for a typical household at £2074 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 go down by around 11% to £1860.66 per year for the average household.
This is based on predicted unit rates of:
- £0.28 per kWh of electricity
- £0.07 per KWh of gas
These are only predictions based on wholesale prices and other energy market data, and 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.
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, 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 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 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 wrong rate for energy. You'll still be billed correctly, though, and your supplier will keep trying to update it, so eventually it should reflect your actual use each day.
Will all energy suppliers change their prices after the 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.
Why only people on variable tariffs will be affected (and why almost everybody is)
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, it was almost always a good idea to be on a fixed tariff. This meant that the price you 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 costs were a lot more stable, 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.
- While prices in wholesale markets were so changeable, energy suppliers stopped offering fixed tariffs during the energy crisis, so as of early August 2023, most people are still on the standard variable tariff.
- Prices of energy in wholesale markets started to come down in early 2023, and some fixed deals were available after the July 2023 energy price cap. Here's a guide to why the price cap and energy prices generally don't exactly reflect the current price of energy.
Is it worth getting a fixed energy deal right now?
Cornwall Insight's predictions say that the October 2023 price cap will lower, so getting a fixed-rate contract before then might mean that you were paying higher gas and electricity prices than you needed to.
Will the next price cap affect my monthly bills? And how?
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 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. This factors in the best data available on future price cap changes. Even with the best data, the predictions aren’t always right.
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.
What do I need to do?
Your supplier will automatically update your monthly payment amount, so you don't need to do anything. If you need to do anything, they'll get in touch.
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 energy bill payers. 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.