You may have heard of the energy price cap. It is often mentioned in articles and discussions about the UK energy market.
However, many people will be unsure as to how it works. At Love Energy Savings, we aim to provide you with the best information on all things energy related. Here, we explain what the energy price cap is and what it means for your gas and electricity bills.
What is the energy price cap?
Energy price caps limit the amount a supplier can charge domestic customers per kWh of electricity and gas. They are set by the energy sector regulator Ofgem. Energy price caps were introduced on 1 January 2019. The caps are adjusted every six months, in April and October. They are reviewed to allow Ofgem to estimate the cost of supplying electricity and gas for the next six-month period
Energy price caps are applicable for prepayment meter customers and those on a standard variable (or default) tariff. Energy providers are not permitted to charge customers more than the price caps.
Currently (as of December 2020) there are two price caps.
The price cap for those on a default tariff is £1,042 for the average home. There is a cap of £1,070 for prepayment meter customers. £1,042 is the lowest level of the cap since it was introduced in 2019. No family using an average amount of energy should pay more than that each year.
What does the energy price cap mean for me?
Ofgem announced the latest energy cap price in October 2020. They said that the decrease in the cap would mean that eleven million households on default tariffs and four million on prepayment meters (around half the UK population) would save money from this reduction.
It is important to note that the cap won’t limit your total bill. How much you pay for electricity and gas depends on a range of factors. These include:
- Your contract
- Your location
- How much energy your household uses
The energy price can go up, as well as down. If it is raised, just like with interest rates on a variable mortgage, the amount you pay will rise.
My energy supplier has told me the price cap applies to my contract
Your energy provider is obliged to inform you if your tariff changes as a result of the price cap. The price cap will be applied automatically. You don’t have to take any action.
However, we recommend you note the unit price that you are paying and compare energy prices.
Does the energy price cap mean I am on the cheapest energy deal?
At Love Energy Savings, what concerns us is how many UK households are still on default or deemed tariffs. Default tariffs are the most expensive offered by energy providers. It is always possible to find a cheaper deal. Fixed-price deals can be hundreds of pounds a year cheaper.
While we welcome the protection the price cap offers to consumers, we advise everyone responsible for paying an energy bill to check if you are on a default tariff.
If you are – with or without the price cap – you’ll likely be overpaying for the energy you use.
At Love Energy Savings, we help tens of thousands of customers to find a cheaper home energy deal each year.
We have made the process of switching energy as simple as possible. Our energy experts manage everything on your behalf. We will even contact you to let you know when a cheaper deal is available.
To find out how much you could save, simply complete our quick home energy comparison form.