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What is the energy price cap?

As of midnight 1 January 2019, the price that energy suppliers can charge consumers for default and standard variable energy tariffs has been limited. The cap, implemented by an act of Parliament-the Domestic Gas and Electricity (Tariff Cap) Act-and developed and administered by energy market regulator Ofgem, is expected to trim the energy bills of 11 million households. The cap is expected to last until 2023, although its level is expected to be adjusted.

Dermot Nolan, chief executive of Ofgem, said: "The price cap will ensure that whether energy costs rise or fall, energy suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes."

Who benefits from the energy price cap?

Not everyone will see their bills fall under their energy cap. It applies only to customers default and standard variable tariffs, who pay some of the highest rates for energy. Consumers on pre-payment tariffs have been protected by a separate price cap since 2017.

The new energy price cap is designed to protect the more than half (54%) of households which are on poor value default tariffs, often because they've loyally stuck with the same provider for years and any previous fixed rate deal has expired.

Although rates of switching have increased, as customers take advantage of the ease of energy comparison, including automatic and collective switching processes, and of competitive gas and electricity tariffs offered by a range of small energy suppliers, Ofgem found that 57% of households had never switched provider or only switched once. According to research from consumer watchdog Citizens Advice, elderly customers and those on low incomes are the least likely to shop around and switch and the most likely to be paying over the odds for their energy, and for other utility services.

Prime Minister Theresa May said the cap would fix a "broken energy market."

"Our energy price cap will cut bills for millions of families and people across the UK who have been ripped off by energy companies for far too long. From today, money will go straight back into the pockets of loyal consumers, including the elderly and those on lower incomes who feel the pinch more acutely," she said.

However, customers shouldn't be complacent that the price cap will get them the best deals on the market or prevent their energy suppliers from charging them more than their savvier, switch-wise neighbours. The price cap delivers an energy tariff that's more expensive than 60% of the others on the market. Customers can still save more than a £200 a year by switching to a new energy supplier and leaving behind a capped tariff.

Some money saving experts initially warned that the energy price cap would cause even more consumer inertia, reducing rates of switching. However, a report from Utilities Week found that over the first month of price cap, rates of switching hadn't shifted.

How high is the energy price cap?

As of January 2019, the price cap is set at £1137 per year for a typical dual fuel customer paying by direct debit. That doesn't mean that the amount a household will pay for energy is limited to that sum, however.

The price cap isn't a limit on your total bills but rather on the amount energy companies can charge you per unit (kilowatt hour) of energy, plus a standing charge that covers their administrative costs for your account, including higher costs if you're paying some way other than direct debit.

These limits are as follows:

  • per unit charge for kWh for electricity-only customers paying by direct debit: 17p
  • per unit charge for kWh for gas-only customers paying by direct debit: 4p
  • annual standing charges for electricity-only customers: £83
  • annual standing charges for gas-only customers: £94
  • annual standing charges for dual fuel customers: £177

The £1,137 figure is the amount a household with energy use matching the medium level of Ofgem's Typical Domestic Consumption Values (TDCVs) would pay each year, if paying by direct debit. Medium levels of TDCV are currently set at 12,000 kWh of gas and 3,100 kWh of electricity per year. If you consume more than that-your energy bill should tell you your monthly consumption and anyone with a smart meter can consult their meter or in-home display for this information-you'll pay more than £1,137 a year.

Additionally, the cap is subject to regional variations. The levels of the cap as of January 2019 for various regions of the UK are as follows:

Region

Price cap (for average consumption on dual fuel)

Northern Scotland

£1,154

Southern Scotland

£1,124

Northern

£1,114

North West

£1,128

Yorkshire

£1,100

North Wales and Mersey

£1,158

South Wales

£1,141

Midlands

£1,134

East Midlands

£1,111

Eastern

£1,130

Southern Western

£1,173

Southern

£1,145

South East

£1,158

London

£1,129

Will the price cap level change?

The level of the price cap is subject to change. It will be adjusted twice a year, in April and October, following reviews February and August. At each of those reviews, Ofgem will account for wholesale energy prices, energy suppliers' network costs, and costs incurred by firms because of government policies, including renewable power subsidies.

In February 2019 it was announced that the cap would rise from April of the same year. The average annual bill with increase by £117 under the cap.