What is the Energy Price Cap?

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. When the energy crisis started in 2021, these tariffs, which are usually the most expensive, became the cheapest deals you could get by a considerable amount. Prices have now started to fall, and suppliers are gradually reintroducing fixed deals, but most are currently at around the same price point as standard variable tariffs, and with large exit fees.

Since January 2023, Ofgem have reviewed the price cap every three months instead of every six months.

How do energy price caps work?

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.

Why you should switch energy supplier

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 until a fixed tariff that meets your needs becomes available is by far the best way to keep your bills down. Although price may not be a major consideration for switching at the moment you may want to consider other factors such as service or green credentials and whether your current supplier meets your expectations on these.