Otis Singleton
The energy price cap is the maximum amount energy suppliers can charge customers per unit of gas and electricity. The cap applies to customers on a standard variable tariff and those on a prepayment tariff. The cap is set by Ofgem, which reviews and updates the price cap level every three months. The energy price cap aims to ensure that households don't pay excessive prices for their energy usage. It is based on 'typical values' of energy usage, assuming an average household uses 2,700 kWh of electricity and 11,500 kWh of gas annually. The cap does not limit the total cost of energy bills, which will vary depending on usage.
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What You'll Learn
How the cap is calculated
The energy price cap is the maximum amount energy suppliers can charge their customers per unit of energy used. The cap is set by Ofgem and is based on the average household's energy usage, assuming a typical household uses 2700 kWh of electricity and 11500 kWh of gas annually. The cap is calculated using 'typical values' and is subject to change every three months. It is worth noting that the cap is not the maximum possible amount for an energy bill, as bills will vary depending on a household's energy usage.
The price cap is designed to protect customers on variable tariffs, ensuring they do not overpay for their energy usage. It also limits the standing charges customers have to pay to be connected to the energy supply. These standing charges are fixed fees that must be paid daily, regardless of energy usage, to cover the cost of supplying energy to the home.
The energy price cap is calculated by taking into account various factors, including the global wholesale cost of energy, which is the amount suppliers need to pay for gas and electricity. For instance, if suppliers face increased energy costs, the price cap will be adjusted upwards to allow them to charge customers more and cover their rising expenses.
Other factors influencing the calculation of the price cap include network and operating costs, the cost of policies and government schemes that suppliers contribute to, and VAT. By considering these elements, the price cap aims to balance the interests of both energy suppliers and consumers, ensuring that prices remain fair and reflective of the underlying energy costs.
It is important to note that the energy price cap only applies in England, Wales, and Scotland. The energy market in Northern Ireland operates differently and does not have an equivalent cap in place. Additionally, the cap does not apply to all types of tariffs; it specifically targets standard variable tariffs and prepayment tariffs to protect customers who do not have fixed energy prices.
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Who the cap applies to
The energy price cap is the maximum amount energy suppliers can charge customers per unit of energy and standing charge if they're on a standard variable tariff. The cap applies to customers in England, Wales, and Scotland, but not Northern Ireland, which has a different energy market without an equivalent cap.
The cap directly impacts those on their supplier's default standard variable tariff and those on a prepayment tariff. It limits how much the average household should expect to pay for the units of gas and electricity they use. The cap is calculated using 'typical values', assuming an average household uses 2,700 kWh of electricity and 11,500 kWh of gas annually. However, it's important to note that the cap isn't the maximum your energy bill can reach, as bills will vary based on energy usage.
The price cap also includes daily standing charges, which are fees for being connected to the energy supply, covering the cost of pipes, wires, and infrastructure. These charges vary by region; for instance, households in the East Midlands may pay 53.14 pence per day, while those in North Wales and Mersey may pay 69.54 pence.
The energy price cap applies to EDF customers on variable or fixed-term tracker tariffs. Their prices are reviewed every three months in line with the Ofgem default cap. EDF offers various tariffs, including standard, prepayment, smart Pay As You Go, E7, and complex meters.
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How the cap affects energy suppliers
The energy price cap is the maximum amount energy suppliers can charge their customers per unit of energy used and for standing charges. The cap is set by Ofgem and is based on the average household's energy usage, which is assumed to be 2,700 kWh of electricity and 11,500 kWh of gas annually. The cap applies to suppliers in England, Wales, and Scotland but not in Northern Ireland.
The price cap directly impacts suppliers on variable tariffs, as it limits the amount they can charge their customers per unit of energy used. This means that when wholesale energy prices increase, suppliers are only able to pass on a certain amount of this increase to their customers. The cap also includes daily standing charges, which are fees customers pay to be connected to the energy supply, regardless of their energy usage.
The energy price cap is designed to protect customers who do not have fixed energy prices, particularly those who are more vulnerable and likely to be on affected tariffs. By setting a maximum price per unit of energy, the cap ensures that households do not pay excessive prices for their energy usage. This can be particularly important during periods of high wholesale energy prices, as suppliers are restricted in how much of this cost they can pass on to their customers.
The price cap can also encourage suppliers to invest in renewable and nuclear power to reduce their reliance on purchasing energy on the global market. Additionally, suppliers may offer incentives to customers to reduce their energy usage or shift their usage away from peak times to lower their overall energy costs.
While the price cap provides protection for customers, it is important to note that it does not limit the total amount customers can spend on their energy bills. The more energy a customer uses, the higher their bill will be, even if the unit price is capped. Therefore, customers are still encouraged to find ways to reduce their energy usage or improve the energy efficiency of their homes to manage their energy costs effectively.
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How the cap impacts your bills
The energy price cap is a limit on the amount energy suppliers can charge for gas and electricity. It is set by the energy regulator, Ofgem, and is reviewed every three months in January, April, July, and October. The price cap is based on the wholesale cost of energy, supplier profit margins, and network infrastructure maintenance costs. It is important to note that the price cap is not a cap on your total energy bill. The more energy you use, the higher your bill will be.
The price cap affects customers on standard variable tariffs, which make up the vast majority of households. If you are on a fixed-term energy deal, the cap does not apply to you. The price cap includes daily standing charges, which are the fees you pay to have your home connected to the energy supply. These fees can vary depending on your region.
For customers on a prepayment meter (PPM), the price cap is typically higher than for those paying by direct debit. This is because prepayment meters have higher unit rates due to added costs. The price cap for PPM customers from April to June 2025 is £1,803 per year.
The energy price cap can impact your bills by providing a level of protection from high energy prices. However, it is important to remember that the cap is based on "typical values" and assumes an average household's energy usage. If your household uses more energy than average, your bills can still exceed the headline price cap figure.
To manage your energy bills effectively, it is recommended to send regular meter readings to ensure accurate billing, consider changing to a fixed tariff, use direct debit payments, and adopt energy-saving practices. Additionally, financial support may be available through schemes such as the Winter Fuel Payment or the Warm Home Discount.
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The future of the cap
The energy price cap is subject to frequent changes, with Ofgem reviewing and updating the cap level every three months. The cap is calculated based on the global wholesale cost of energy, which has seen a lot of uncertainty due to the situation between Russia and Ukraine. As a result, wholesale gas and electricity prices have been highly volatile, increasing by 30% from mid-December to early February.
In the future, the energy price cap will continue to be influenced by global energy market dynamics and the actions of energy suppliers. Suppliers are investing their profits in building more renewable and nuclear power to reduce reliance on global energy purchases. This shift towards renewable energy sources and increased energy independence could potentially stabilize energy prices and reduce the volatility of the energy price cap in the long term.
Additionally, energy suppliers are offering various initiatives to help customers manage their energy costs. These include encouraging customers to shift their energy usage away from peak times, providing tracker tariffs that offer dual fuel prices below the price cap, and promoting energy-efficient solutions such as smart meters and insulation.
While the energy price cap is intended to protect customers on variable tariffs from excessive charges, it is essential to recognize that energy prices are expected to remain high in the near future. Customers can take proactive measures to reduce their energy usage and improve energy efficiency in their homes to manage their energy costs effectively.
The energy price cap will continue to be a dynamic mechanism, reflecting the changing landscape of the energy market and the efforts of suppliers and governments to balance affordability with the realities of energy supply and demand.
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Frequently asked questions
The energy price cap is the maximum amount energy suppliers can charge customers for each unit of energy and standing charge if they're on a standard variable tariff.
The energy price cap limits how much the typical household should expect to pay for the units of gas and electricity they use if they're on a default or prepayment tariff. The cap is calculated using 'typical values' and assumes that an average household uses 2,700 kWh of electricity and 11,500 kWh of gas in a year.
The energy price cap applies in England, Wales, and Scotland. The cap directly affects anyone on their supplier's standard variable tariff and anyone on a prepayment tariff. The more energy you use, the more you pay, and the less you use, the less you pay.
The energy price cap level is reviewed and updated every three months.
