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Energy price caps were introduced by Ofgem in 2019. They limit the highest amount that an energy company is allowed to charge an average customer per unit, for the gas and electricity they use.
The aim is to make sure that the prices people pay for the energy they use are fair.
The energy price cap does not limit what you will pay in total. If you use more, you will pay more.
Understanding the Ofgem Energy Price Cap Regulations
Every three months, Ofgem reviews and updates the energy price cap regulations, in January, April, July and October.
The Ofgem energy price cap is based largely on wholesale energy prices and applies only to providers' standard and default tariffs, which the vast majority of households are now on.
Recent Changes in the Energy Price Cap (2024 Update)
The rate that people will pay based on the new cap varies by area. See the energy price cap standing charges and unit rates by region here.
However, from 1 January to 31 March 2024, the energy price cap is changing.
For a typical user paying by Direct Debit:
The energy price cap is increasing from £1,834 to £1,928 per year. The unit rate will be 29p per kWh for electricity and 7p per kWh for gas.
The average daily standing charge will be 53p per day for electricity and 30p per day for gas.
It means that the average household faces paying 5% more compared to October 2022’s price cap.
For a typical user paying by cash or cheque:
The Ofgem energy price cap is increasing to £2,058 a year on typical use, up from £1,959 per year. The unit rate will be 30p per kWh for electricity and 8p per kWh for gas.
The average daily standing charge will be 60p per day for electricity and 35p per day for gas.
For a typical prepayment user:
The energy price cap is increasing to £1,960 per year, from £1,861. The unit rate will be 28p per kWh for electricity and 7p per kWh for gas.
The average daily standing charge will be 60p per day for electricity and 40p per day for gas.
If you use a prepayment meter to pay for the energy you use, you will pay lower standing charges than the energy price cap as part of the UK Government’s Energy Price Guarantee. You can find more information here.
The changes to the energy price cap are down to the increase in the cost of wholesale gas in recent months. This is due to world events including the war in Ukraine and the conflict in the Middle East.
How Does the Energy Price Cap Affect Household Bills?
The changes to the energy price cap leave households facing even more pressure on their finances in the new year.
Even low-electricity households are not safe from higher bills, as standing charges for gas and electricity, which have increased and are due to increase again in April, make up about 16% of overall household bills.
The government is currently subsidising prepayment customers through the Energy Price Guarantee, to ensure that they don’t pay any more than Direct Debit customers. Unfortunately, this support will expire at the end of March 2024.
Managing High Energy Bills Under the New Price Cap
At Stay Energy Safe, we understand that changes to the energy price cap can make it more and more difficult to meet regular payments or to keep your meter topped up.
While rising energy bills will be a worry for many, bear in mind that the energy price cap is predicted to fall again in April 2024, according to independent energy analyst, Cornwall Insight.
In the meantime, there are some alternatives that can help you with controlling and reducing energy bills:
Talk to your energy supplier about having a prepayment meter – or ‘pay-as-you-go meter’ – installed in your property. It’s an effective way to manage budgets and the amount you spend on gas and electricity. It can also be used to build up credit during the summer months, for example, and other times you are using less energy.
Smart meters – which can work in prepayment or credit mode – provide real-time insights into how much energy you are using. They can help you to discover habits that might be burning a hole in your wallet, so you can adjust those habits to save money.
To learn more about the different meter types and what they can do for you click the link here.
Some people might consider tampering with their meter, stealing electricity and gas in an attempt to reduce energy bills. This is simply not an option. All it does is put you and your loved ones in serious danger. You can learn more about the dangers of energy theft here.
For more information about what to do if you’re struggling to pay your bills, follow the links below:
Alternatively, contact your energy provider to see what options are available for you.
Stay vigilant, to keep your household and community safe. If you suspect someone of energy theft, contact Stay Energy Safe immediately. Report it 100% anonymously on 0800 023 2777 or via our online form.
FAQs
What is the Energy Price Cap?
The Ofgem energy price cap limits what you pay for each unit of gas and electricity that you use. It also sets a maximum daily standing charge (what you pay to have your home connected to the grid).
How are Energy Price Cap levels determined?
The Ofgem energy price cap is based on factors including wholesale energy costs, network charges, and other operational expenses.
What are the current Energy Price Cap levels for 2024 (for the period 1 Jan – 31 Mar ‘24)?
If you pay by Direct Debit, the energy price cap is increasing to £1,928 per year.
If you pay by cash or cheque, the energy price cap is increasing to £2,058 per year.
If you prepay for your energy, the energy price cap is £1,960 per year, depending in which area of the country you live in.
How often is the Energy Price Cap reviewed and updated?
Every three months – in January, April, July and October.
How does the Energy Price Cap impact different payment methods like Direct Debit and prepayment meters?
Ofgem says that paying by cash is higher than paying by Direct Debit to reflect the additional billing administration costs incurred by suppliers. Historically, people on prepayment meters have paid higher standing charges than Direct Debit customers too. This is because it cost suppliers more to serve them.