All about the energy price cap

What is the price cap? What does it mean for your bills?

Ofgem (the independent energy regulator for Great Britain), announced an increase in the energy price cap in 2018. The maximum cost of an energy bill will now be set at £1,254 a year for those who pay by monthly direct debit as of 1 April 2019, and at £1,242 for those who pay in advance (based on Ofgem typical usage).

For those who pay by monthly direct debit, this represents a £117 increase to the initial level of the price cap, which was originally set at £1,137 on gas and electricity prices. Ofgem says that they have had to take this action due to cost increases for suppliers, the majority of which is from the cost of wholesale energy.

Though the price cap offers some limited price protection, it is only a temporary measure, and is by no means a full solution to the high cost of energy. For many people, the key to lowering energy bills comes from choosing to be on a low-cost tariff. Ofgem points out that “Households protected by the cap will be able to save even more money by shopping around for a better deal”. Nearly all of the best deals can only be obtained by switching to a cheaper tariff - and the average saving is £300.

Both the energy regulator and energy experts agree that shopping around is the key to significantly lowering energy bills:

Lawrence Slade, the CEO of Energy UK (the body that represents energy suppliers), says: “…We must continue to encourage more customers to engage and benefit from the large savings that can be made by switching which far exceed those delivered by the cap - and customers may benefit from fixed price deals which can protect against potential future rises.”

Dermot Nolan, CEO of Ofgem, agrees: “Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible”.

The recent increase to the price cap is the result of Ofgem’s policy to update the price cap in April and October every year to reflect the latest estimated costs of supplying electricity and gas. Ofgem indicated when announcing the level of the price cap on 6 November 2018, that the savings offered by the price cap may increase as they have: “Wholesale costs have risen significantly over the last year. If this trend continues, it is likely that in February Ofgem will announce an increase in the level of the cap to take effect in April”.

With the energy regulator saying that the price cap is likely to fluctuate, and energy prices currently on an upward trend, we recommend switching to a low-cost fixed price energy tariff to lock in savings that are already bigger than the price cap will deliver.

Does the Price Cap mean I can use as much energy as I want, and never pay more than £1,254?

No.

There has been some reports of people being confused by how the price cap works. It is important to note that the price cap does not cap your overall bill, rather it caps the unit rate. Therefore your bill will go up and down depending on how many units of energy you use. If you increase your energy usage, the cost of your bill will go up, and if you decrease your usage, your bill will go down.

 


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