The Energy Price Cap
Over the last two years, we have seen our energy bills rise and measures introduced by the government to help to mitigate these costs. As wholesale energy prices start to fall, Ofgem has announced a reduction in the Energy Price Cap from July to September this year. However, Ofgem had reported that it’s unlikely that prices will return to the levels we saw before the energy crisis began anytime soon.
Here we look at what the price cap means for you and how it will affect your outgoings over the next six months.
The government introduced the Energy Price Cap in 2019 to offset rising wholesale energy costs. This meant that there was a maximum price that energy suppliers could charge households for each kilowatt hour (kWh) of gas and electricity used. Over the last six months, the typical annual energy bill for a UK household using gas and electricity (paying by direct debit) has been limited to £2,500 by the Energy Price Guarantee (EPG). The government’s Energy Price Guarantee will go back up to £3,000 from July, and the Energy Price Cap will be set at £2,074 a year from July to September.
From October 2022 to March 2023, all households were given a £400 discount which was a credit to energy bills of £66 which was paid directly onto your electricity bills in October and November, and £67 in December, January, February and March. There are no plans to apply the discount again this winter unless the government reinstates a similar scheme.
The price cap won’t affect those on a fixed tariff (which has been few and far between over the last three years). The cap is applied if you’re on a default energy, or standard variable, tariff – which most people are. It sets a maximum price that energy suppliers can charge for every kilowatt hour (kWh) of energy used.
If you have a prepayment meter, the Energy Price Cap reduction will offer a slightly more considerable saving as the cost will be reduced to the same rate as direct debit users.
If you pay by direct debit, your energy bills are usually based on an estimate of how much you use. So if you’re in credit, it’s worth doing a meter reading and contacting your supplier to check you’re still paying the right amount.
The Energy Price Cap will be set at £2,074 a year from July to September, but it’s worth remembering that this is only an estimate for a typical household and if homes use more than typical use, they will pay more. Ofgem estimates that a typical or ‘medium-use household’ is generally considered a two- to three-bedroom house with 2 or 3 people. Similarly, living in a smaller property will pay less than £2,074. However, it will depend on which appliances you use and your heating system.
All households will still pay a fixed standing charge for the connection, no matter how much energy you use. This depends on your tariff, provider and where you live.
The outlook
Experts have predicted that prices will start to come down, but people will know when Ofgem announces the price cap for the next period beginning in October 2023. We will unlikely see prices return to the levels we enjoyed before the energy crisis for several years.
Government support
Find out more about some government-funded schemes in England, Scotland and Wales to help with energy bills here. This includes the Warm Home Discount Scheme. If you currently claim benefits, or if you or your partner get the Guarantee Credit element of Pension Credit, you could get a discount of £150 off your electricity bill this winter or £150 added to your prepayment meter under the scheme. You may get a discount on your gas bill instead if your supplier provides you with gas and electricity, and you’re eligible.
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