Should we be taking our hat off for the energy price cap?

By 17 January 2019 General

Ofgem announced in September 2018 their intention to cap energy rates. This came into play on the 1st January 2019. You may have heard a lot about this, but let’s talk about what exactly this means and how it affects you.

What exactly is the Energy Price Cap?
An energy price cap was put in place to make energy prices fair for the customer, protecting them from extortionate rates and inevitable overpayment. Not all energy tariffs are however capped, it’s only if you are on a ‘standard variable’ energy tariff or a tariff you haven’t chosen (a ‘default’ tariff), you have a prepayment meter or you get the government Warm Energy Discount.
A standard variable tariff or default tariff is a contract where there is no set length and in which there is no set fixed term. This is the supplier’s default offer and is usually one of the highest tariffs any customer can be charged.
What does it mean for customers?

Ofgem explains “Customers on default tariffs will save around £76 on average and as much as £120 on the most expensive tariffs” Although it’s restricted to those on a standard variable tariff, the impact is still predicted to affect 11 million households and with such a drastic amount of people being affected it’s key that customers are aware.

How does the cap work?

Unfortunately, although current headlines may have led you to believe, not everyone will save money. Essentially it means that energy suppliers have a limit on what they can charge per unit or kWh of energy for electricity and gas. This forces them to charge customers a maximum amount up to a certain level and cancel any excess charges. The annual figure has been set at £1,137 a year, which could change later in the year, this is based on a dual fuel contract paid via direct debit. These figures have been estimated on a national average for a ‘typical user’ of electricity and gas.

Do I have to apply for this cap or is it done automatically?

This is an initiative which has been set out by the energy governing body- Ofgem. Any customer which can benefit from this will do so automatically, so if eligible you don’t have to do anything.

Will I save money?

The simple answer is not everyone will save money. It will only affect people that are currently on a standard variable tariff or default tariff, as discussed earlier. However, those customers who are eligible and are consistent with their energy consumption will save money. Naturally if your energy consumption increases then your bills could go up. To be clear, you will simply be paying a better rate on every kWh of electricity and gas used, the cap is on the unit of energy, not your overall bill.


Is the price cap fixed or will it increase at any point?

The price cap is fixed until the end of 2023. However, Ofgem does reserve the right to review every April and October to account for shifts in the wholesale cost as well as other costs in order to maintain objectivity. It has been predicted that in February 2019 Ofgem may announce an increase in the price cap and this is due to the current unstable climate of the energy industry. Wholesale prices have been increasing significantly in recent months, meaning this change in price could be transferred to the customer.

What is the best advice I can offer?

The best option available to any customer currently on a standard variable or default tariff is to shop around. Assess the market and find the best rate available. If you can arrange a fixed term agreement with a supplier there is a high chance of you saving money.

If you are on a fixed price tariff, you will generally be paying less than the price cap maximum limit, so we’d recommend staying where you are. have stated that customers who switched paid £921 a year on a dual-fuel fixed tariff – £216 less than the cap level on average.

You may find Ofgem’s video, which explains more about the Energy Price Cap, helpful…


Article written by: Reiss Foster, Senior Business Energy Consultant