What Is The Energy Price Cap In 2023?
From July 2023, Ofgem has announced that the energy price cap will be set at £2,074. A drop of £476 based on typical UK household consumption. As the price cap has fallen lower than the Energy Price Guarantee set by the government to combat rising costs, the price cap will become active once again and is the price you will pay.
What Is The Energy Price Cap?
The price cap is managed by the energy regulator Ofgem to ensure that suppliers charge fairly in accordance with wholesale costs. The price cap is on the unit rate per kWh used and your bill will be based on how much energy you use.
Remember this is the maximum you should be paying - you can compare energy deals to see if you can get an even cheaper unit rate.
| Energy Price Cap From July 2023 | Current Energy Price Guarantee | |
|---|---|---|
| Electricity | 30.11p (kWh) | 33.21p (kWh) |
| Gas | 7.51p (kWh) | 10.31p (kWh) |
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How Does Ofgem Calculate The Price Cap?
As this is basically putting a cap on supplier profits, calculating the price cap has a variety of factors that must be considered. Ofgem has released some information on how they set the price cap:
- Wholesale energy costs - the baseline consideration is how much the supplier pays for the energy it later provides UK households
- Network upkeep costs - the costs relating to the maintenance of energy buildings and maintaining the network that delivers the energy to each home. This includes any operating costs
- Government policies - any government schemes are considered when applying the price cap
- 5% VAT is added
What Is The Energy Price Guarantee?
This is a scheme introduced by the government on energy prices from October 2022 through June 2023. The guarantee sets the maximum UK households pay for their energy regardless of wholesale costs.
Can I Switch Energy Suppliers In 2023?
Energy suppliers have started offering fixed-rate deals. This means you might be able to lock in a great deal before the winter months.
Ofgem's Energy Price Cap History
From the day it was first set in January 2019, it’s fair to say the energy price cap has seen its fair amount of fluctuation. Let’s look at each time the cap was set over the last few years.
When Was The Energy Price Cap Introduced?
The first price cap for default energy tariffs, or standard variable tariffs (SVTs) as they’re often referred to, was established on 1 January 2019 by Ofgem - the Office of Gas and Electricity Markets.
Since 1 April 2017, there has also been a price cap protecting customers on prepayment meter tariffs, which covers around 4 million energy consumers.
Why Was The Price Cap Introduced?
The aim of establishing the default tariff price cap was to provide protection to some 11 million energy customers across the UK, ensuring they paid a fair price for the energy they used to power their homes.
The price cap is set so energy suppliers can’t charge their customers whatever they want per kWh of energy they use, while also reflecting on the wholesale energy market so suppliers aren’t buying energy at a more expensive rate than they’re selling at.
How Often Does The Energy Price Cap Change?
Ofgem reviews the energy price cap every three months. This has changed due to fluctuating energy prices as they only used to review it twice a year.
Deep Dive Into The Price Cap History
January 2019
When the price cap was first established suppliers could set the rate of their standard variable tariffs as they wished. The average annual price of an SVT was set to £1,137, which worked out at £94.75 on average per month. However, this was then adjusted in February 2019 to £1,254 - a monthly SVT average of £104.50.
August 2019
The next price cap announcement saw the annual SVT average drop to £1,179 with a monthly average cost of £98.25.
February 2020
It dropped again in February 2020 to £1,162 and a monthly average of £96.83.
Ofgem changes average usage
Between the February and August price cap announcements, Ofgem changed how they calculated the price cap by lowering the household average energy usage of electricity to 2,900kWh from 3,100kWh.
August 2020
Due to wholesale energy prices plummeting from lack of demand during the first Covid-19 lockdown, the price cap dropped to its lowest-ever recorded price of £1,042 with a monthly average of £86.83.
February 2021
As the lockdown began to ease and people started to venture out, wholesale energy prices started to climb, which caused the price cap announcement of February 2021 to increase by £96 to £1,138 and a monthly average of £94.83.
August 2021
With wholesale prices still climbing, the price cap rose again to £1,277 with a monthly SVT average of £139 - the highest price cap to date.
April 2022
Wholesale energy prices continued to surge to £1,971 with a monthly average cost of £164,25.
October 2022
Wholesale prices continued to rise further to a staggering £3,549, averaging a monthly cost of £295.75. The government introduced the Energy Price Guarantee to bridge the gap of rapidly increasing energy costs. This was set at £2,500 per year for typical household usage.
April 2023
The Energy Price Guarentee was scheduled to end. This was extended until July 2023. It was extended as predictions had the price cap increasing hitting £3,280 for typical households.
July 2023
Energy switching coming back? Yes! Ofgem announces the price cap drops to £2,074 and becomes active once again under the temporary price guarentee.
