Ofgem's energy price cap 2022: What you can do to beat the increase

The energy price cap is an upper limit set on the cost of an average annual dual fuel (gas and electricity) bill that applies to customers on default tariffs or customers using prepayment meters.

Energy regulator Ofgem first introduced the cap in 2019, and its level is reviewed twice annually. There are actually two separate caps for default (standard variable) and prepayment tariffs – the prepayment cap tends to be slightly higher.

The cap is designed to provide a safety net to customers on pricey tariffs, especially the more vulnerable. The cap applies to the unit costs of energy, and the total figure Ofgem provide is based on an average household - your bill may end up higher if you use more energy.

The default tariff price cap is currently £1,277 and will increase to £1,971 (+£693) from April 1st.

The prepayment tariff price cap is currently £1,309 and will increase to £2,017 (+£708) from April 1st.

The April increase will last until October 2022, when the cap will change again.

The main reason for the April increase (which was announced in February) is a record increase in wholesale energy costs over the last six months, according to Ofgem. Gas prices in particular have soared to reach record highs, with wholesale gas prices quadrupling over the last year.

How is it calculated?

The cost of a capped tariff is calculated based on wholesale energy supply costs, which tend to fluctuate throughout the year. The idea is to stop costs spiralling for customers, but to keep the cap at a level that reflects what suppliers actually pay for their power.

The cap is reviewed twice a year (in February and August), and adjusted accordingly once for summer, and once for winter.

If you are either on a default tariff or use a prepayment meter, your bills will almost certainly go up when the new price cap kicks in. Suppliers aren’t obliged to increase the cost of their tariffs along with the price cap, but in general they tend to do so.

If you are on a fixed rate tariff, your costs won’t directly be affected by the cap increase, but since fixed rate costs do change along with wholesale supply prices, you will probably find that when you come to renew your deal you’ll be paying more than before.

If you are not sure what kind of tariff you are on, think about how recently you switched to a new plan. If you can’t remember, it probably means you are on a standard variable tariff and it’s a good idea to switch to a new fixed rate plan before October.

The price cap does help to stop energy bills from constantly rising and getting out of control. Default or standard variable tariffs are invariably the most expensive way to pay for your energy supply by direct debit, and prepayment plans cost more still.

Despite switching being routinely promoted, lots of customers are still on default tariffs – disproportionately elderly customers, who are more likely to be classed as vulnerable. Prepayment meters are often installed for people whose credit rating stops them from being able to get standard credit meters. Ofgem’s price cap helps all of these customers.

The best way to protect yourself against sky high energy costs, however, is almost always to switch over to a new, cheaper deal altogether. A few suppliers, like Bulb, only offer variable rates, which are nonetheless cheaper than a lot of the competition, and some others, like Octopus, ensure a minimal difference in cost between their fixed rate and default plans. For others, it’s usually worth getting a fixed rate plan.