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What is the Energy Price Cap?

What is the Energy Price Cap?

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Last updated: 29 March 2021

You may have heard about the energy price cap that was implemented by the UK energy regulator Ofgem on 1 January 2019. It ensures that you pay a fairer price for your gas and electricity, putting money from suppliers’ pockets back into yours.

It was initially estimated that the cap should save a typical household around £76 a year. However, the cap was raised in April this year - pushing average annual bills for households on standard variable tariffs up by £117. Nonetheless, Ofgem assure that the cap will still protect customers from otherwise even higher costs.

Will I get lower bills?

If you were on a poor value deal before the cap’s introduction, then yes you will. The cap is designed specifically to target standard variable tariffs (SVTs), which are almost always the most expensive energy deals offered by any supplier.

However, the amount you save does depend on your usage of course. The price cap doesn’t mean that you can use as much energy as you want and not be charged over a set amount. This is because the cap is based on the price per unit of energy. Extensive energy usage will still mean that your bills will be above average.

Twice a year, Ofgem reassesses the level of the price cap, meaning that it can go up again in October as it did in April.

Will the cap affect me?

It depends. The price cap will only apply if you:

  1. Are on a default or standard variable energy deal
  2. Have a prepayment meter (for which there is a separate cap)
  3. Receive the government's warm home discount (whilst being on a default energy tariff)
Those on fixed term or renewable energy tariffs (standard variable) are not included in the cap. As the cap means that pricing has changed, you should compare energy deals to find a cheaper tariff.

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Is the cap the same for everyone?

Not necessarily. The cap is adjusted for different people due to certain factors that include:

  1. Your location
  2. Whether you pay by direct debit or standard credit
  3. The type of energy meter in your house

Is the price cap permanent?

No, it’s due to end by 2023. The cap has been put in place by Ofgem while broader energy market reforms are developed and implemented. Whilst it may seem like a bad thing that the cap won’t last forever, the proposed faster switching times and smart meters will make it easier for you to save money in the long run. Ofgem have said that “it will be up to the government to consider if the market is working well enough for the cap to be removed”.

How can I save money on energy after the cap finishes?

Switching energy supplier is probably one of the easiest ways to save money on your gas and electricity bill. If you have never switched your energy supplier, it is very likely that your supplier has put you on a standard variable tariff and you will be paying well over what is necessary for your power. Up to £252 a year could be saved from switching if you are currently on your supplier’s default tariff.

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Michael Quinn

Author: Michael Quinn

Michael is a dedicated author helping usave to write guides, blogs and news for the last four years. When not writing articles, you can usually find him at wine tasting events or having a political debate on the night tube.

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