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In summary...
- The price cap for Oct-Dec 2024 is set at £1,690/year
- Gas is capped at 6.04p/kWh (plus 31.43p/day standing charge)
- Electricity is capped at 24.50p/kWh plus 60.10p/day standing charge)
In detail...
When wholesale energy prices rose suddenly in 2022, the energy price cap protected homeowners from the full impact by limiting the amount that energy suppliers could charge.
Energy prices have fallen since then, but the price cap still plays an important role in ensuring that homeowners aren’t overcharged by energy suppliers.
In this article, we’ll find out what the energy price cap is, how it works, what it is today and much more...
What is the energy price cap?
The energy price cap is set by Ofgem, the UK energy regulator, to limit the maximum amount energy suppliers can charge their customers.
Although often expressed as an annual figure (e.g. £1,600 for an average household), the cap actually sets the maximum price charged per unit of energy (kWh).
Ofgem reviews the energy price cap every three months and can raise it, lower it or keep it the same.
Does energy price cap include standing charge?
Yes, the energy price cap sets a maximum standing charge in addition to the maximum cap per unit of energy.
The standing charge is a fixed daily cost that you pay no matter how much energy you use (e.g. 30p per day).
How does the energy price cap work?
The purpose of the energy price cap is to protect people from being overcharged by energy providers. This is why it's set by Ofcom, the independent UK energy regulator.
Ofcom reviews and sets the price cap three times a year to reflect changes in the underlying cost of supplying energy (see how this is calculated, below).
The price cap works by limiting the amount energy providers can charge for supplying gas and electricity.
This could impact your energy bills in the following ways, depending on how you pay for energy:
- Variable energy tariffs: The amount you pay will change in line with the energy price cap. If the cap goes up or down, so will your payments.
- Fixed-rate energy tariffs: The amount you pay will stay the same, at least until your fixed-rate payment term ends.
- Prepayment meters: Ofgem sets a separate price cap (typically more than those paying by Direct Debit) for people using pre-payment meters. The amount you pay will change in line with the pre-payment energy price cap.
Bear in mind that your energy bill will depend largely on how much energy you use, regardless of whether the energy price cap goes up or down.
How is the energy price cap calculated?
Every three months, Ofcom either raises, lowers or keeps the cost cap the same to account for changes in the energy markets.
The energy price cap is calculated based on the following costs:
- Wholesale costs: Around 46% of an energy bill is based on the price that energy suppliers pay to buy gas and electricity from energy producers.
- Network costs: Around 19% of an energy bill is based on the infrastructure cost of transporting energy around the country.
- Policy costs: Around 8% of an energy bill is based on the costs imposed on energy suppliers to fund the UK government’s energy-related policies, such as the Great British Insulation Scheme.
- Additional costs: The remaining 27% is based on the operating costs of running an energy provider, a Direct Debit uplift (to fund a reduction for customers who pay by DD), a small amount of extra headroom to account for unexpected costs, and VAT.
This calculation sets the maximum unit cost of electricity and gas, as well as the standing charge. However, an additional calculation is made to estimate the annual expected cost of the ‘typical home’ paying by Direct Debit.
A typical home’s consumption is estimated based on Typical Domestic Consumption Values (TDCVs) which represents the average amount of gas and electricity used by households across England, Scotland and Wales. The calculation is based on a ‘medium’ energy usage figure by 2-3 people living in a 2-3-bedroom home.
The actual amount due depends on your personal household energy usage, where you live, the meter type and payment type.
What is the energy price cap now?
Key Changes:
- The dual fuel price cap has decreased by over 7% from £1,690 to £1,568.
- Electricity prices have decreased from 24.50p to 22.36p per kWh.
- The daily standing charge for electricity has slightly increased from 60.10p to 60.12p.
- Gas prices have decreased from 6.04p to 5.48p per kWh.
- The daily standing charge for gas has slightly decreased from 31.43p to 31.41p.
When will Ofgem’s energy price cap change?
The energy price cap for 1 October 2024 - 31 December 2024 has been announced by Ofcom.
- The price cap for Oct-Dec 2024 will be set at £1,717/year (an increase of 9.5%)
- Gas will be capped at 6.24p/kWh (plus 31.66p/day standing charge)
- Electricity will be capped at 24.50p/kWh plus 60.99p/day standing charge)
Energy prices usually rise and fall with demand, so it’s possible that the energy price cap could increase again on 1 January 2025 as demand for energy increases during the winter months.
When is the next energy price cap review?
Ofgem will next review the energy price cap on 25 November 2024 to set the cap for the period 1 January - 31 March 2025.
History of the energy price cap
A cap has been set on the price of energy since 2017. Originally, this was known as the ‘safeguard tariff’ or ‘prepayment meter cap’. It only applied to households with prepayment meters.
In 2019, the ‘default tariff cap’ was introduced to protect households on variable and tariffs. It was updated twice a year, in April and October, and was later renamed to the ‘energy price cap’.
In August 2022, in response to the rapid increase in global energy prices, the regulator Ofgem began reviewing the price cap more frequently - four times a year rather than two. This was intended to offer households faster relief when prices fell, but it also meant that it could rise more quickly when wholesale prices increased.
In October 2022, the UK government introduced the Energy Price Guarantee. This temporary measure effectively reduced the energy price cap further to reduce the burden on households while energy prices were at their peak. The Guarantee ended in July 2023.
Since 2023, the energy price cap has remained in place and continues to be reviewed by Ofgem every three months.
Here’s how the price cap on energy has changed over time:
Safeguard Tariff (2017-2018)
*Dual fuel costs are based on an average household paying by Direct Debit.
Source: Ofgem
Default Tariff Cap (2019-2022)
*Dual fuel costs are based on an average household paying by Direct Debit.
Source: Ofgem
Energy Price Cap (2022-present)
*Dual fuel costs are based on an average household paying by Direct Debit.
Source: Ofgem
FAQ
When did the energy price cap start?
The energy price cap, as it’s currently known by name, started on 1 April 2022. However, a cap on energy has been in place since 1 April 2017 when it was known as the ‘safeguard tariff’.
Who sets the energy price cap?
The energy price cap is set by Ofgem, the independent energy regulator for Great Britain.
When does the energy price cap change?
The energy price cap is reviewed and updated every three months by Ofgem. Changes take effect in January, April, July and October.
What’s considered a typical household?
Ofgem’s definition of a typical household, which is what the annual energy price cap figure is based on, is a 2-3-bedroom house with 2-3 residents using 11,500 kWh of gas and 2,700 kWh of electricity per year.
What are standing charges and how do they change?
The standing charge is a fixed daily amount you pay for being connected to the energy grid, regardless of how much energy you use. The standing charge is reviewed and updated by Ofcom as part of the energy price cap.
Does the energy price cap affect people on fixed rate deals?
No. The energy price cap only applies to customers on variable tariffs. If you’re on a fixed rate deal, the price cap won't affect the amount you pay for energy until your fixed term ends.
Why are energy costs so high?
Energy costs are high due to several factors, including increased global energy demand and reduced gas supply from Russia.
What was the Energy Price Guarantee?
The Energy Price Guarantee was a temporary measure introduced by the UK government in October 2022 to supplement the energy price cap and reduce the impact of rising energy prices. It limited the amount people paid per unit of gas and electricity until April 2023.
What is the prepayment meter cap?
The prepayment meter cap is a separate price cap set by Ofgem specifically for customers with prepayment meters. It’s typically higher than the cap for direct debit customers.
Is the price cap shown on my energy bill?
No, the energy price cap isn’t typically shown on your energy bill. Instead, your bill will show your actual energy usage and the price you’re being charged per unit of gas and electricity. You can scroll to the top of this page to see the current energy price cap and compare it against your bill.
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