Otis Singleton
The energy price cap is a limit on how much suppliers can charge per unit of gas and electricity. The price cap is set by the UK's energy regulator, Ofgem, and applies to customers on default or standard variable energy tariffs. The cap is based on the average use of a dual-fuel customer and is subject to change. While the price cap provides some stability, it does not limit the total cost of energy bills, which can vary depending on energy usage, payment methods, and property characteristics. With the recent energy crisis causing sharp price increases, the price cap has been crucial in preventing costs from spiraling out of control.
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What You'll Learn
How is the energy price cap calculated?
The energy price cap is set by Ofgem, the independent regulator for the energy market in Great Britain. The cap is calculated every three months (in January, April, July, and October) to reflect the fair costs of supplying gas and electricity.
The energy price cap does not limit the total bill paid by individual households. Instead, it limits how much energy providers can charge consumers for the units of energy they use. The cap is applied to the daily standing charge and the charges for each unit of energy used (in kilowatt-hours, kWh). The standing charge is a fixed fee paid to have an energy connection, billed at a daily rate regardless of how much energy is used.
The wholesale market price of gas and electricity plays the biggest role in determining the average energy bill. Ofgem determines the cost of buying energy from the market by tracking wholesale prices over a period of six months ahead of the next price cap period. For example, the price cap in place over the winter months was based on the rising market prices recorded between February and July.
In addition to wholesale energy costs, Ofgem also considers network and operating costs, the cost of policies and government schemes suppliers contribute to, and VAT when calculating the level of the price cap.
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$7.19
Does the price cap apply to everyone?
The price cap limits the maximum amount energy suppliers can charge customers per unit of energy. It is based on a "typical household" using 11,500 kWh of gas and 2,700 kWh of electricity annually with a single bill for gas and electricity, settled by direct debit. The cap does not apply to Northern Ireland, which has its own energy market. It also does not apply to fixed-rate tariffs, where the cost of each unit of power is fixed, but bills will go up if more power is used.
The price cap applies to those on a "default" or "standard variable" energy tariff, where the amount paid is subject to price changes. A standard variable tariff is the default pricing plan for suppliers, and customers whose contracts have ended are usually rolled onto this tariff. It is the most basic tariff an energy supplier offers and the most common type is a standard variable tariff. The price cap applies to those on a default energy tariff, regardless of how bills are paid or if a prepayment meter is used.
The price cap does not limit the amount paid over a year, and the actual amount paid will depend on energy usage. Those who pay their bills quarterly by cash or cheque pay more, while those on prepayment meters pay less. Standing charges, which are billed daily regardless of energy usage, are also typically included in the cap. However, campaigners argue that these charges are unfair because they make up a bigger proportion of the bill of low energy users.
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What are the alternatives to a price cap?
There are several alternatives to a price cap on electricity. Here are some options:
- Fixed-price deals: These deals are not affected by the energy price cap and offer customers certainty over their bills for a set period, often a year or longer. However, customers may get stuck with higher prices if energy rates drop during the contract period, and they may have to pay a penalty for leaving the fixed deal early.
- Switching to a different energy supplier or tariff: Customers can compare energy deals and consider switching to a different supplier or tariff to find a better option that suits their needs. This is especially relevant for those on standard variable tariffs, which are typically the most expensive and are subject to the price cap.
- Reducing energy usage: Customers can take control of their energy bills by using less energy. This can be achieved through energy-saving practices and the use of tools like energy-saving apps, which help track energy usage and costs.
- Government interventions: Governments can intervene in the energy market to protect consumers from high energy costs. For example, the Household Support Fund, introduced in September 2021, helps vulnerable customers with their energy bills. The Warm Home Discount scheme offers discounts to eligible pensioners and low-income households.
- Tender-based systems for renewable and nuclear energy: As suggested by Brussels, a tender-based system for renewable and nuclear energy could be implemented. This would involve energy ministers debating and deciding on the best course of action.
- Energy efficiency: Improving energy efficiency in homes can help reduce energy consumption and, consequently, energy bills. This can be achieved through various measures such as better insulation, energy-efficient appliances, and smart home technologies.
- Market competition: Encouraging competition in the energy supply industry can help drive down prices and improve offerings for consumers. However, some argue that price caps negatively impact competition.
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How does the price cap affect my bills?
The energy price cap limits how much energy suppliers can charge per unit of gas and electricity. This means that the rate at which you are charged for your gas and electricity usage is fixed, as are the standing charges for both. The cap does not, however, limit the total cost of your payments at the end of the month, as this depends on how much gas or electricity you use.
The price cap is set by the UK's energy regulator, Ofgem, and applies to those on a default energy tariff, regardless of how you pay your bills or if you're on a prepayment meter. Default tariffs are the most basic tariffs offered by energy suppliers, with the most common type being a 'standard variable' tariff. This means the amount you pay is subject to price changes, although your supplier should write to you to confirm any changes with a notice period. A standard variable tariff can’t be higher than the price cap.
The price cap level is based on an average use dual-fuel customer paying by direct debit. This means that you could pay more than the cap amount if you live in a bigger house and/or use more energy. Your energy bill depends on the overall amount of gas and electricity you use, how you pay for it, the type of property you live in, how energy efficient it is, how many people live there, and the weather.
From 1 July to 30 September 2025, gas prices will be capped at 6.33p per kilowatt hour (kWh) and electricity at 25.73p per kWh. Those who pay their bills every three months by cash or cheque pay more, but those on prepayment meters pay a little less.
There are other ways to save money on your energy bills. Fixed energy tariffs are deals offered by energy providers that last for a certain amount of time, usually around 12 months. During this time, you’ll pay a set amount for your gas and electricity – your bills will vary depending on your usage, but the rate stays the same. Fixed rates are helpful for keeping control of your budget, and the rates you pay will probably be lower than those of a standard tariff.
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What happens if my energy supplier goes bust?
As of July 2025, gas prices are capped at 6.33p per kilowatt hour (kWh) and electricity at 25.73p per kWh. The cap does not apply in Northern Ireland, which has its own energy market.
If your energy supplier goes bust, you will still be able to use gas and electricity as normal. Ofgem, the energy regulator, will appoint all affected households with a new supplier. This process should only take a few days, but it could take longer.
Once a new supplier has been appointed, they will contact you with details about your new tariff, how to set up payments, and what will happen to your existing account balance. The supplier will also work out how much you owe for the energy you used before they took over your account, and this may be deducted from your account balance.
You won’t be able to remain on the same tariff you had with your previous supplier. Instead, you will automatically be switched to the new supplier’s ‘deemed tariff’, which is typically more expensive than standard tariffs. You do not need to remain with the supplier you’ve been allocated, and you can choose to switch to a different energy firm without facing any penalty charges.
While you wait for your new supplier to be decided, you should top up as before so that you continue to get your energy supply. However, it may be worth only topping up a small amount so that you do not have excess credit when your account is transferred. This credit may not be available to use with your new supplier, and any refunds may take a while to process.
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Frequently asked questions
The energy price cap limits how much energy suppliers can charge per unit of gas and electricity. It is set by the UK’s energy regulator, Ofgem.
The price cap sets a maximum rate that suppliers can charge for each unit of electricity and gas. This rate is known as the unit rate or the cap level. The cap level is based on an average use dual-fuel customer paying by direct debit. The cap does not limit the total cost of energy usage, which depends on how much energy is consumed.
The price cap applies to customers on a "default" or "standard variable" energy tariff. This is the most basic tariff offered by energy suppliers and is subject to price changes. If you are on a fixed-term tariff, the price cap does not apply to you.
The price cap prevents costs from spiralling out of control, but it is not designed to offer the cheapest rates. Fixed energy tariffs are offered by providers for a set period, usually 12 months, and can offer lower rates than the price cap. Fixed tariffs can be helpful for keeping control of your budget, as the rates are set for the duration of the contract.
