Understanding your energy bill can be tricky, especially with prices fluctuating every three months due to the Price Cap changes. With October’s Price Cap rising by 10%, the average household bill is now £1,717 a year - 65% more than in October 2021 and it's predicted to go up again in January.

Now more than ever, it’s crucial to grasp how the Price Cap works and how it affects your energy costs. Here’s a simple breakdown to help you navigate this key part of your energy bill and what it means for you.

What is the Energy Price Cap?

Introduced in January 2019, the energy price cap is a safeguard set by Ofgem, the independent energy regulator for Great Britain, to protect consumers from paying excessively high prices for their gas and electricity by capping standing charges and energy unit costs.

• Standing Charge: A fixed daily amount you pay regardless of how much energy you use.
• Unit Price: The cost per unit of electricity or gas you consume, measured in pence per kilowatt hour (p/kWh).

Ofgem sets the price cap every three months. The cap is reviewed and adjusted in January, April, July, and October, which means prices can vary seasonally. 

The cap applies to default tariffs and is typically the most basic type offered by energy suppliers. They’re usually referred to as a ‘standard variable’ tariff, but you might also hear them called ‘Price Cap tariffs’. This means your rates can change, but they won’t exceed the cap. Your supplier must notify you if there are any changes to your rates. 

What Does the Price Cap Figure Mean?

In October, the average household energy bill increased by 10%, with the average energy bill now £1,717. Many people assume that they're an 'average' household. But, Ofgem’s average is based on typical domestic consumption for a household with 2-3 bedrooms and 2-3 occupants. For an average household, Ofgem uses these figures to estimate annual energy use:

• 12,000 kWh for gas
• 2,900 kWh for electricity

So, if your home is bigger or you use more energy, your bill will likely be higher. The Price Cap isn't a cap on your total energy bill. Instead, it caps the standing charge - a fixed daily charge for keeping your home connected to the grid, and the unit cost - the price you pay for the energy you use. 

Is the Price Cap the Same Everywhere in the UK?

The price cap figure is an average for the country, but actual costs can differ by region. For instance, residents in Greater London might have lower standing charges due to more developed network infrastructure and higher demand, compared to some rural areas of the UK. 

Why Are Electricity Rates Higher Than Gas?

You might notice that your electricity rates are generally higher than your gas rates. This is partly because a growing amount of our electricity comes from renewable sources like solar and wind, which can be less predictable. When the sun isn't shining or the wind isn't blowing, we rely more on non-renewable sources to generate electricity. This is more expensive and can push up electricity prices.

Other factors like wholesale energy costs and network costs also play a big part in the overall rates we pay as consumers.

Can I Be Charged More Than the Price Cap?

If you’re on a standard variable tariff, the price cap limits how much you can be charged. However, if you’re on a fixed-term tariff, the cap won’t affect you since you pay the prices agreed upon when you signed the contract.

It’s also important to remember that how much your bill comes to, ultimately depends on how much energy you use. While the unit cost is capped, the more you use, the more you pay. 

What Does the New Energy Price Cap Mean for Me?

The impact of the new Price Cap will depend on your energy usage. If you’re a high energy user or have a large household, you might exceed the £1,717 average bill. For those on fixed tariffs or with lower energy usage, the increase might be less significant.

Understanding the energy price cap helps you manage your energy costs more effectively. If you’re unsure about your tariff or how the cap affects you, contact your energy supplier for clarification.

Who Does the Energy Price Cap Apply To?

The price cap applies to you if you’re on a default or standard variable tariff set by your supplier. It’s worth noting:

• The price cap doesn’t apply if you’re on a fixed-term tariff with a set end date and fixed prices.
• It also doesn’t apply to some specific tariffs, such as certain green or time-of-use tariffs.

If you’re unsure which tariff you’re on, your energy supplier can clarify this for you.

Can I Get Help with My Energy Bills?

If you’re struggling with your energy bills, there are options for support:

• Reduce your usage: You have the opportunity to take control fo your energy bills by using less energy. The more energy you use, the higher your energy bill will be - regardless of how much unit costs increase. A free energy-saving app like Loop is an essential tool to help you understand how much energy you’re using and what it’s costing you. Then, you can spot which actions will make the biggest impact on your bill.
• Get Additional Support: Consider financial assistance - either for making your bills more manageable or for making your home more energy-efficient. From the Winter Fuel Payment to the Warm Home Discount, there are a range of grants and schemes available to households looking for additional support with their energy bills. 
• Contact your supplier: If you’re ever in doubt about your tariff, you’re struggling with your payments, or need more information about things like the price cap, you can always contact your supplier for guidance. 

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