Energy Price Cap - What does it mean for consumers?

Energy price caps are a legal requirement that energy suppliers must comply with to protect households against unfair rises in gas and electricity costs and overcharging. The cap puts a limit in place on what energy suppliers can charge customers who are on either standard variable or default energy tariffs.

The energy regulatory body, Ofgem, normally review price caps twice a year, once in April (summer) and again in October (winter) to reflect changes in wholesale energy costs. The latest price cap was introduced on 1st April 2020.

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 energy tariffs that they have fallen into after a fixed rate deal has expired. With the cap in place, suppliers can only charge up to a set amount for their default energy tariffs, saving households money on their bills.

The current tariff cap is set at £1,127 per year for a household that is on a standard variable or default energy tariff. You can find your details on your energy bill and will be able to see the cap being applied if you are on one of these tariffs. If you are on a fixed rate tariff then the cap will not apply to you.

Even with the cap in place this doesn't mean you won't end up paying more for your energy per annum. Price caps are set at unit price plus standing charges. With the cap being set by averaging out annual usage, if you use more energy than the medium typical domestic consumption value (TDCV) you will still be charged extra.

Price caps are also based on region due to transportation costs and you could see higher rates if you don't pay by direct debit.

How much does the energy price cap save customers?

The default price cap, which protects around 11 million households according to Ofgem, has reduced by £17 from April 2020. Whilst this is a saving, the cap is subject to change pending review by Ofgem twice a year.

Why you should switch energy supplier

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 always best to consider a fixed rate plan to secure the price you pay. At the time of the price cap review, savings of up to £383 per annum could be achieved by moving away from a default tariff to a cheaper deal.

Whilst the energy cap protects those who are not actively seeking cheaper deals, many customers are losing out on these big savings because they are overwhelmed by the energy market, be it due to confusion reading energy meters or simply daunted by the switching process. With oil prices falling, energy rates are lower than ever and now is a good time to review your current tariff, especially if you've never switched before.

Here at The Energy Shop we take the pain out of the process and can guide you through exactly how to switch supplier and get the best rate. Once you've chosen your deal, thanks to the Energy Switch Guarantee, your new provider will take care of the switch and you won't have an interruptions to your service.

Use our energy comparison tool today to find out exactly how much you could be saving.


Joe Malinowski, founder of award winning energy price comparison website commented.

"While a price cap may sound attractive, offering the prospect of a £100 reduction in fuel bills for many, it could take a while to arrive and is only a fraction of what is currently on offer in the market. The only sure way to bring an end to rip-off energy prices is to take 5 minutes to compare, switch and bag yourself an annual saving of £350."

Compare Energy Prices. Switch & Save up to £383!

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