The Energy Price Cap Explained

The energy price cap is a regulatory limit set by Ofgem, the UK’s energy regulator, to ensure that energy suppliers do not charge customers excessive prices for their energy. The cap is based on a “typical household” using 11,500 kWh of gas and 2,700 kWh of electricity a year, with a single bill for gas and electricity settled by direct debit. This cap is reviewed and updated every three months to reflect changes in the energy market, ensuring that it remains fair and relevant. By doing so, it helps protect consumers from sudden spikes in energy prices while allowing suppliers to cover their costs.

Who is affected by the price cap?

The energy price cap affects around 26 million customers on Standard Variable Tariffs (SVT) and 7 million customers on fixed tariffs. However, it does not apply to customers in Northern Ireland, which has its own energy market regulations. The primary aim of the price cap is to protect customers from high energy prices, especially those on SVT who may not have the opportunity or knowledge to switch to a cheaper tariff. By capping the prices, it ensures that these customers, including those on dual fuel tariffs, are not overcharged by their energy suppliers.

What is the current energy price cap?

The cap is reviewed quarterly to ensure it reflects wholesale energy costs and other industry expenses. While the cap sets a limit on the unit rates and standing charges, your actual energy bill will vary based on your usage, location, payment method, and meter type.

Current Cap Levels (1 January to 31 March 2025):

• Annual Cost for a Typical Household: £1,738
• Electricity Rates:
  • Unit Rate: 24.86p per kWh
  • Daily Standing Charge: 60.97p
• Gas Rates:
  • Unit Rate: 6.34p per kWh
  • Daily Standing Charge: 31.65p

Note: These figures are averages across England, Scotland, and Wales for customers paying by Direct Debit (VAT included).

When do future price cap levels change?

It’s reviewed and changed every three months – this is to reflect wholesale marketplace costs, as well as inflation. The next cap will be introduced at the start of January and will run until March 2025.

It’s been announced that the maximum price energy suppliers can charge dual fuel customers, paying via Direct Debit, in a typical household will be £1,738.

Energy price cap dates

We review and update the price cap level every three months. The levels for the next periods will be announced by:

• 25 February 2025 – period 1 April 2025 to 30 June 2025
• 26 May 2025 – period 1 July 2025 to 30 September 2025
• 27 August 2025 – period 1 October 2025 to 31 December 2025

Electricity and gas unit prices and standing charges, 1 January to 31 March 2025

Figures are rounded to two decimal places and based on the England, Scotland and Wales average for people who pay by Direct Debit. These include VAT.

How has the energy price cap changed historically?

Ofgem, the energy industry regulator, is responsible for setting the cap. It calculates the cap based on a variety of different factors – the biggest being wholesale cost, or the amount a supplier pays for the gas and electricity they supply to consumers like yourself.

However, it also takes into account network costs (for maintenance, operation and implementation of the infrastructure used to supply energy to households), operating costs, VAT, earnings (the profit a supplier is permitted to make), payment method allowances and more.

Understanding your energy tariff is crucial. A fixed tariff can provide price certainty for a defined period, protecting you from potential price hikes. However, it also comes with drawbacks, such as the risk of being locked into a higher rate if market prices fall. It’s important to understand the terms of these fixed deals, including any exit fees and the uncertainty associated with long-term contracts due to fluctuating price caps.

Your energy tariff is the rate at which you pay for your energy. There are two main types of tariffs: Standard Variable Tariffs (SVT) and fixed tariffs. SVT is the default tariff offered by energy suppliers, and the price can vary depending on the energy market. Fixed tariffs, on the other hand, offer a fixed price for a set period, usually a year or longer. Understanding your energy tariff is essential to ensure you are not overpaying for your energy. By knowing the type of tariff you are on, you can make informed decisions about whether to switch to a more cost-effective option.

Standing charges are a fixed daily fee to cover the costs of connecting to a supply. Under the energy price cap, standing charges have risen by 43% since 2019. Campaigners argue that standing charges are unfair because they make up a larger proportion of the bill for low energy users. In response, Ofgem has proposed that energy firms must provide a choice of price-capped tariffs from winter 2025. One option would include a standing charge and unit rate, while the other would have no standing charge but a higher unit rate. This change aims to offer more flexibility and fairness to consumers.

The energy price cap will affect your bills by limiting the amount that energy suppliers can charge you for your energy. The cap is designed to protect customers from high energy prices, particularly those on SVT. However, it’s important to note that the cap may not always result in lower bills, as energy suppliers may increase their prices to the maximum allowed under the cap. Therefore, it is essential to regularly review your energy tariff and consider switching to a cheaper tariff to ensure you are not overpaying for your energy.