What is the energy price cap and how does it work?

Families still reeling from the news that the energy price cap is rising by 54% in April. But analysts are now predicting a further significant rise in October 2022. But do you know what the energy cap is, how it’s decided and what you can do to lessen it’s impact on your finances?

Energy regulator Ofgem announced in February that the cap will rise from £1,277 to £1,971 a year. This means some families could be paying an additional £693 a year for their gas and electricity. If you’re on a pre-paid meter, expect to pay £708 more for average use. The price cap was introduced on 1 January 2019 by Ofgem. It was introduced to ensure suppliers did not charge customers more than a certain amount per kWh of energy usage. The cap also reflects the wholesale price of gas. This is so that suppliers don’t buy energy at a more expensive rate than they are selling it. Unfortunately, wholesale gas prices have soared, meaning the cap has increased significantly.

Tashema Jackson, energy expert at energyhelpline.com, told us: “With around 22 million of households affected, this is the single biggest bill increase in living memory, and will leave many people up and down the country with the stark choice of heating or eating.”

We explain in more detail what the price cap is, why energy prices have gone up and what you can expect to pay for your gas and electricity bills in the coming months. Here’s everything you need to know.

What is the energy price cap in 2022?

Currently, the energy price cap stands at £1,277. But the latest update, announced on 3 February, means the cap will rise to £1,971 from 1 April 2022. This means the maximum rates from April will be 7p per kilowatt hour (kWh) for gas, and 28p per kWh for electricity.

Analysts at Cornwall Insight are predicting a further rise of 47% in October. If you’re concerned about how much your bill will increase in October, you can use the calculator on our how much will my energy bills cost article.

The price cap is calculated by Ofgem and is designed to stop energy suppliers overcharging domestic customers for gas and electricity.

Jonathan Brearley, chief executive of Ofgem, says: “The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.”

The stated figure is calculated as an average across the UK, but the price cap actually varies by region and how people pay their bill. Customers who pay by standard credit (cash or cheque) pay an additional £130 based on the higher cost for energy companies to serve them.

Since the energy price cap was introduced, most suppliers have set their default tariff prices very close to the maximum cap rate.

How does the energy price cap apply to me?

The energy cap applies to anyone who is on a standard or default tariff. The standard tariff is the supplier’s variable tariff, which can go up and down at any point in the year at the supplier’s discretion. If you did not choose a tariff, then you are on a default tariff.

The cap is also based on average use – so, you may pay more (or less) for your energy than the price cap depending on how much energy you use, and how you pay your bill. If you pay your bill by Direct Debit, you could save around £130.

If you are still on a fixed rate energy deal, where the price of your energy is locked at a set rate for a certain period, then the energy cap does not apply to you until your contract ends. A fixed contract is anything between 12 months to two years.

How have energy price caps increased over time?

The energy price cap was £1,137 when it was introduced in January 2019. Since then it’s been increased by £834 and now stands at £1971 (coming into force in April). The energy price cap is reviewed every six months. Price cap announcements are made in February, with the new cap effective from 1 April; and in August with the cap effective from 1 October.

The price cap has gone up and down during this time period. It was £1,137 from January to March 2019, and then from April 2019 to September 2019 it was set at £1,254. It went down to £1,179 for October 2019 to March 2020, and then down again, to £1,126, for April 2020 to September 2020. From October 2020 to March 2021 the price cap was set at its lowest ever level of £1,042.

Wholesale energy prices started to increase at the beginning of 2021 as the world emerged from lockdown. In February 2021 it was announced that from April 2021 the cap level would increase by 9% to £1,138. The price cap then went up to £1,277 in October 2021 – the highest level until the announcement that the cap will rise to £1,971 from April 2022.

Unfortunately, prices are not going to drop any time soon, with analysts at Cornwall Insights predicting that the price cap will rise to £2,329 from October 2022.

January 2019 – March 2019

April 2019 – September 2019
UP £117

Oct 2019 – March 2020
DOWN £75

April 2020 – September 2020
DOWN £53

October 2020 – March 2021
DOWN £84

April 2021 – September 2021
UP £96

October 2021 – March 2022
UP £89

April 2022 – September 2022
UP £694

How to find out if you’re on a price-capped tariff

You can find out if you are on a price-capped tariff by looking at your energy bill or online energy account. It’s usually on the first page under the ‘My tariff’ section. You might have chosen a standard tariff when you picked your supplier, or you might have been put on a standard tariff if you moved house. If you were previously on a fixed tariff and didn’t take any action when it ended, you would have been automatically moved to your supplier’s standard tariff.
If your supplier went bust and you were moved to a new supplier, you would have been put on its standard variable tariff. With close to 30 energy suppliers shutting down since last summer, hundreds of thousands of customers will fall into this category. These suppliers went bust because the price cap forced them to sell energy at a massive loss.

If you’re not sure who your new supplier is, here’s a list of the suppliers that have gone bust and the suppliers their customers have been moved to.

Old supplier
New supplier

Ampoweruk Ltd
Yü Energy from 7 November 2021

Avro Energy
Octopus Energy from 26 September 2021

Bluegreen Energy Services Limited
British Gas from 7 November 2021

CNG Energy Limited
Pozitive Energy from 7 November 2021

Colorado Energy
Shell Energy from 17 October 2021

Shell Energy from 17 October 2021

E.ON Next from 3 October 2021

Entice Energy
Scottish Power from 1 December 2021

GOTO Energy
Shell Energy from 21 October 2021

Green Network Energy
EDF from Sunday 31 January 2021

Green Supplier Limited (‘Green.’)
Shell Energy from 27 September 2021

Hub Energy
E.ON Next from 13 August 2021

Igloo Energy
E.ON Next from 3 October 2021

MA Energy Limited
SmartestEnergy from 7 November 2021

MoneyPlus Energy
British Gas from 11 September 2021

Neon Reef Limited
British Gas from 21 November 2021

Omni Energy Limited
Utilita from 7 November 2021

Orbit Energy Limited
Scottish Power from 1 December 2021

People’s Energy
British Gas from 19 September 2021

PFP Energy
British Gas from 11 September 2021

Pure Planet
Shell Energy from 17 October 2021

Simplicity Energy
British Gas Evolve from 31 January 2021

Social Energy Supply Ltd
British Gas from 21 November 2021

Symbio Energy
E.ON Next from 3 October 2021

Together Energy Retail Ltd
British Gas from 24 January 2022

Utility Point
EDF from 18 September 2021

Whoop Energy
Yü Energy Retail Limited

Xcel Power Ltd
Yü Energy Retail Limited

Zebra Power Limited
British Gas from 7 November 2021

Zog Energy Limited
EDF from 4 December 2021

Source: Ofgem

Can I change my price cap for a fixed deal?

Normally, the advice from energy experts is to fix your energy tariff as this generally results in a lower bill than being on a default tariff. But soaring wholesale prices mean energy companies can’t afford to offer cheap fixes anymore. Most fixed tariffs are considerably more expensive than the price cap, if they are offered at all.

Justina Miltienyte, energy policy expert at Uswitch.com, said: “Despite the bill hike announcement, for most people it’s probably best to stay on your supplier’s default tariff for now, unless you are already locked into a fixed deal. It’s important to keep an eye on the market and be ready to fix a new deal as and when they become available.”

The post What is the energy price cap and how does it work? appeared first on GoodtoKnow.

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