The Energy Price Cap explained

Posted on 06 Aug 2021 Posted in  Utilities, Tips & Updates
Energy Price Cap

Want to know more about the Energy Price Cap and if you are being protected if you stay with your current supplier? To help you, we have answered some common questions about what the Energy Price Cap does, what it means for you and how you can get your bills cheaper. With the help of our Energy Compare tool, you can also get cashback if you decide to switch.

What is the Energy Price Cap?

The Energy Price Cap was introduced by Ofgem in October 2018 with the aim of ensuring all consumers pay a fair price for their energy. The cap limits what a supplier can charge you per kWh of electricity and gas on their most expensive Standard Variable Tariffs or Default Tariffs. It is not a limit on your total bill which will go up or down depending on how many units of energy you use. There are 11 million households in the UK on this type of tariff (50% of all households) these are typically those who’ve never switched or who have rolled off a fixed rate on to a tariff they’ve not chosen. Ofgem are likely to announce the next price cap on 6th August 2021 which will come into effect on 1st October. Suppliers must give 30 days notice to customers of price rises and SVTs for new customers are repriced within a few weeks of the announcement.

Does the cap apply to all tariffs?

The cap won’t apply if you are on a fixed-term energy tariff or you actively chose to sign up to a renewable energy tariff (standard variable) which Ofgem has exempted from the cap. The cap only applies to energy supplier’s standard variable or ‘default’ tariffs.

What is a default or standard variable tariff?

These tariffs are an energy supplier’s basic offer and tend to apply if you haven’t shopped around for a better deal. They are typically poorer value and more expensive than a non-default, fixed-term contract deal, which you can choose to switch to. You will often need to renew fixed-term contracts after a year or more. If you have never switched, or not switched for a long time, you are likely to be on one of these tariffs. It is estimated that over half of all households in Great Britain are on these tariffs because they have never switched or have not done so recently.

The most common type of default deal is a ‘standard variable’ tariff. A standard variable tariff has prices that can go up and down with the market. These tariffs don’t generally have an end date and won’t have a fixed-term period applying to any of the contract terms and conditions, such as your gas or electricity unit prices. You could be put on one if a fixed-term energy contract ends and you’ve not chosen a new one.

How do I find out if the cap is on my tariff?

It’s best to contact your energy supplier. Suppliers must apply the cap set by Ofgem. They must also write to tell you if your tariff is changed in a way that could disadvantage you or the tariff you are on is changing and will no longer be available.

Should I still look into switching?

Yes, even if you are covered by the cap you should still look into switching. The cap is in place to stop companies charging excessive prices so people who are vulnerable and less likely to shop around won’t be caught out. This means even if you are using less energy and paying less than the cap it is highly likely that you will get a cheaper deal by switching.

Jonathan Brearley, Chief Executive of Ofgem said: “Although those protected by the cap are paying a fair price, they can also reduce their energy bills further by shopping around for a better deal.”

So, whilst the cap stops unfair charges occurring it still means you could save far more by switching your tariff or supplier. Use our Compare Energy tool and get up to £50 cashback when you switch (offer valid until 10th August 2021 23:59).

Assessing your options is important and comparing the Big Six suppliers to smaller challenger firms is equally as important.

What is the cap now?

The current default tariff cap is set at £1,138 per year. This rate came into effect from 1 April 2021. There is also a separate cap for prepayment tariffs which currently stands at £1,156. This cap affects 4 million people in the UK who have a prepayment meter and is reviewed independently of the SVT cap by Ofgem.

What is the new cap and why has it increased?

Energy wholesale prices recently hit a 13 year high, with the price of wholesale gas and electricity increasing by over 50% since February 2021. This was driven by extraordinary trading conditions, a combination of lower gas imports due to the global recovery especially from an increase in demand from Asia following the Covid-19 pandemic, colder spring weather, increased carbon emissions costs and rising infrastructure costs. Due to the wholesale prices now being much higher than they were at the time of calculating the previous price cap in April this has led to Ofgem raising the price cap.

The new cap amount was announced on 6th August 2021 for implementation on 1st October 2021. The new default tariff cap will be £1,277, an increase of £139 from the current cap of £1,138. Alongside the default tariff cap, Ofgem announced the new price cap for prepayment tariffs. The new prepayment meter price cap will be £1,309, which is an increase of £153 from the current cap.

For more information on the level of the Energy Price Cap and how it is estimated then head to Ofgem’s website .

Comments
cryesis09 Aug 21 - 00:12 Hi, can I go away from prepay, to dd fixed , i've been on prepay, for many years. I've always liked paying that way, as I could always see what I was using, and could cut down if I ever needed too.. Dd is kinda scary, like jumping out of the frying pan into the fire.. But time are getting tougher, money getting tighter. So was thinking 🤔 & Hoping this just might be a cheaper option in the long run. Can you please confirm one way or another.
I've got to leave company i'm with. Totally 100% Useless..
Hey

I have checked a few enegry providers on our site and we would advise to check all the offer information on the new provider you wish to purchase energy with which is underneath the cashback offer links as some do consider switching from a pre pay meter not eligible for cashback offers.

If you need any help with a specifc offer please drop our team a support ticket and they can take a closer look to help.

Best wishes

Phil