Understanding the Energy Price Cap

What is the Ofgem Energy Price Cap?

The Ofgem Energy Price Cap sets the maximum most energy suppliers can charge. It covers the price of each unit of energy and the standing charge. It applies to those on a standard variable tariff. 

The cap is quoted as an annual figure. It is based on a dual fuel average user paying by monthly direct debit. The price cap does not apply to fixed rate tariffs. Nor does it cover prices from some green energy firms.

The UK Energy Price Cap was initially set every six months. In 2022 this changed to each quarter (three months).

Broken down, the cap limits the:

1. standing charge for gas
2. standing charge for electricity
3. unit charge for gas
4. unit charge for electricity

How much is the Ofgem Energy Price Cap?

For energy customers who pay by direct debit, the Energy Price Cap is £1,690. This price runs from 1 April to 30 June 2024.

This table shows how this is broken down for the average house on a dual fuel tariff. Units of energy are measured in kilowatt hours (kWh).

Some important points to note about the Ofgem price cap are:

• It’s stated as an average annual figure based on typical use, but it varies by region
• You may pay more than the average if you use more energy than the typical home
• ‘Green’ energy firms are exempt from the price cap
• It doesn’t apply to fixed energy tariffs

The Ofgem price cap changes depending on how you pay. This table shows each annual energy price caps by payment type for the period 1 April to 30 June 2024.

Why was the cap on energy prices introduced?

The cap on energy prices was introduced to make sure people paid a fair price for energy.

Firms were charging high prices compared with wholesale energy prices. This led to an increase in fuel poverty during the cost-of-living crisis.

The price cap prevents energy firms from charging what they want per kWh of energy used. It also tracks wholesale prices, to prevent suppliers from purchasing energy at a higher price than they can sell at.

In 2022, wholesale energy prices rose so high that the UK government introduced the Energy Price Guarantee (EPG). It was a temporary additional measure until March 2024.

Like the Ofgem price cap, the EPG put a limit on prices for standing charges and unit rates of energy. It was also stated as an average annual amount. It was set at £2,500 a year. The price that households paid for energy was the lowest of either the Ofgem Energy Price Cap or the EPG.

How is the Energy Price Cap calculated?

The Energy Price Cap is calculated by the energy regulator Ofgem.

It is based on:

1. Typical use by UK homes
2. Costs faced by energy firms

Usage is calculated using ‘typical domestic consumption values’ (TDCVs). The TDCV figure is the average gas and electricity used by homes across England, Scotland and Wales.

Ofgem says this is the normal usage for a home with two or three bedrooms and where two or three people live.

Factors that affect the price cap

The following table shows which factors affect the price cap.

The largest cost is wholesale energy. This has gone up in the past couple of years. Causes include:

• Covid lockdowns
• Cold winters
• Russia’s invasion of Ukraine

How will the cap on energy prices impact your energy bills?

The cap on energy prices impacts your energy bills if you are on a standard variable tariff.

If the energy price cap goes up, households on standard tariffs will pay more. If it goes down, you will pay less.

The energy price cap doesn’t limit how much your bill will be in total. Your bill will depend on how much energy you use.

The price cap won’t impact your bills if you are on a fixed rate tariff, or with a green energy supplier.

What is a standard variable tariff?

A standard variable tariff is an energy supplier’s default tariff. Because it’s variable, unit rates and standing charges can go up or down. They can’t be higher than the price cap.

You might be on a standard variable tariff if you:

• Have come to the end of your fixed rate tariff and not taken any action
• Have never changed energy tariffs
• Haven’t asked for a specific tariff (if you move house and inherit the supplier of the previous occupant)

You can switch away from a standard variable tariff at any time without giving notice or paying an exit fee.

Before the energy crisis began in autumn 2021, standard variable tariffs tended to be the dearest option for customers. The energy crisis stopped firms offering cheap fixed tariffs. Standard variable tariffs then became the cheapest option for most homes.

Now that energy prices are falling, the situation is more complex. Standard variable tariffs might be cheaper for some people, while a fixed tariff might work out cheaper for others.

Difference between fixed rate and standard variable tariffs

The following table shows the main differences between fixed rate and standard variable energy tariffs.

How to save money on energy bills

There are two main ways to save money on your energy bills – using less energy and switching energy provider.

You can also get money off your bill if you are eligible for the Warm Home Discount Scheme.

Tips for reducing energy consumption

You can reduce your energy consumption by:

• Setting your central heating to a lower temperature
• Turning your central heating off when you’re not at home
• Reducing your boiler flow temperature
• Using your washing machine, tumble dryer and dishwasher less often
• Not leaving TVs and computers on or on standby
• Draught-proofing to prevent heat escaping through doors and windows
• Insulating your home to stop heat loss through walls and the loft

Switching energy providers

You can use a price comparison website to switch to most energy firms. Or you can contact your new supplier directly to initiate a switch.

Some providers offer electric vehicle (EV) tariffs with cheaper energy prices at night. If you have an EV you can save by charging your car at night.

Some energy firms offer ‘green’ energy tariffs. A green tariff means some, or all, of the electricity you buy is matched by purchases of renewable energy. Renewable energy sources include solar, wind, tidal, hydro and geothermal.

Different tariffs are available to households with Economy 7 or Economy 10 meters. However, these are being phased out.

Different tariffs are also offered to homes with prepayment energy meters. These are also protected by the price cap.

FAQs about the Energy Price Cap

Will the price cap protect me from rising energy costs?

The Energy Price Cap aims to protect households on default energy tariffs from rising energy costs.

The price cap only applies if you are on a standard variable tariff. It doesn’t apply if you are on a fixed rate tariff or with a green energy firm exempt from the price cap (Ecotricity, Good Energy and 100Green).

Can I switch energy suppliers if I’m on a capped tariff?

If you are on a standard variable tariff, you can switch energy suppliers penalty-free at any time. If you are on a fixed tariff you can switch when the contract ends.

What if my fixed tariff is higher than the price cap?

If your fixed tariff is higher than the Energy Price Cap, you’ll be paying more for your energy than if you were on your supplier’s standard variable tariff.

Fixed energy tariffs normally have exit fees if you want to switch tariffs before the end of the fixed period. You should factor these fees into your calculations when working out if it’s worth switching.

Can energy companies charge more than the cap in any circumstances?

Ofgem does not apply the price cap for tariffs and suppliers that generate and supply green energy to customers.

Ecotricity, Good Energy and 100Green are green energy firms that are exempt from the price cap.

How often does the energy price cap change?

The Energy Price Cap changes every three months: January to March, April to June, July to September, and October to December.

The new energy price cap is normally announced by Ofgem five or six weeks before taking effect.

Conclusion: Understanding the Ofgem Energy Price Cap

Ofgem’s Energy Price Cap limits how much energy firms can charge customers on standard variable tariffs.

The cap sets maximum rates for standing charges and unit rates, but it’s normally expressed as an annual amount based on typical use.

Green energy firms are exempt from the price cap, and it does not apply to fixed rate energy tariffs.