From the 1st October 2022, Ofgem are increasing the Energy Price Cap from £1,971 to an eye-watering £3,549. Below we have created our 'Energy Price Cap Calculator' to help you work out your new energy costs following the increase.
The 'Energy Price Cap' is a legal requirement that energy suppliers must comply with in an attempt by Ofgem, the energy regulator, to protect households against unfair rises in gas and electricity costs and being overcharged for their home gas and electricity. The cap puts a limit in place on what suppliers can charge customers who are on either standard variable or default energy tariffs. It is these tariffs that around 22 million of the UK remain on and are, in any normal time, amongst the most expensive forms of energy tariff. This is where the current energy crisis comes in. These tariffs, which are usually the most expensive, are in fact now the cheapest deals you can get by a considerable amount.
The energy regulator, Ofgem, reviewed the price cap twice a year, once in April and again in October, to reflect changes in wholesale energy costs. The latest price cap was introduced on 1st October 2021 when the average yearly cost of a dual fuel energy bill moved from £1,138 to £1,277 - a rise of 12.2%. On Thursday 3rd February 2022, they announced a further price rise of…wait for it...54%!!! The biggest single increase in energy costs EVER. This will take the average UK gas and electricity bill from £1,277 to an eye watering, and financially crippling, £1,971.
Ofgem recently announced they will now review the price cap every three months instead of every six months.
Here we've put together a calculator enabling you to enter your monthly spend to see what the costs of your energy would be over through to March 2023. This will enable you to compare your costs by NOT switching against those costs from any fixed tariffs you may be offered.
Price caps work by setting a limit on the rates a supplier can charge for each unit of gas and electricity. Many households are stuck on expensive default tariffs that they have fallen into after a fixed rate energy deal has expired, when they move in to a new property or if they have never switched their gas and electricity provider. With the cap in place, suppliers can only charge up to a set amount for their default energy tariffs, therefore apparently (as Ofgem claims) saving households money on their energy bills.
You can find your tariff details on your energy bill and will be able to see if you are on a "Standard Variable" tariff or, if you switched to an energy supplier after another supplier went bust, a "Deemed Contract". If you are on a fixed rate energy tariff then the cap will not apply to you until your energy tariff expires.
Even with the cap in place, this doesn't mean you won't end up paying more for your energy each year. Price caps are set at a unit price (the amount you pay for each kilowatt hour used) plus standing charges (the amount charged each day whether you use energy or not). With the cap being set by averaging out annual energy usage, if you use more energy than the medium Typical Domestic Consumption Values (TDCVs) - meaning "the average household", you will still be charged extra. Equally, if you use less, then your annual energy bill will be lower.
Price caps are also based on your region due to transportation costs and you could see higher rates if you don't pay by direct debit.
However, despite these small variations, the unit rates per kilowatt hour (kwh) and Standing Charge consumers will be paying from 1st April 2022 on a "Standard Variable" tariff are:
The default price cap, which protects around 22 million households according to Ofgem, has increased by £693.35 since October 2021. Whilst this is a huge increase of 54% in just 6-months, the eyewatering movements in wholesale gas prices (which is how we make most of our electricity as well as heat our homes and food) mean that the cap is actually working in the sense it is keeping consumer bills lower than they otherwise would be. For example, we are now seeing energy suppliers launch "fixed" rate energy tariffs (which aren't controlled by the cap) at as high as £3,500 a year for an average user.
Usually, with the cap in place for standard variable or default tariffs, the best way to make big savings to your energy bills is to switch energy suppliers. As the price cap doesn't protect you from price fluctuations it's generally best to consider a fixed rate plan to secure the price you pay. However, these aren't normal times and as we have said above, right now sitting on a "Standard Variable" tariff for the next 6-months is by far the best way to keep your bills down. And so, for the first time in our history, we're telling you to NOT SWITCH. Instead, sit back, keep your bills down and, if the market for switching returns, be ready to switch. Remember, these price increases don't come in to play until 1st April 2022 and so we still have a few weeks for the market to react and hopefully offer up some cheaper energy deals for you to switch and save.