Hidden Costs of the Energy Price Cap

The energy price cap is decided by Ofgem. It limits how much energy supplierscan charge for each unit of energy and standing charges. This rule protects consumers from high energy prices. However, your energy bill may still include many extra costs.

Understanding the Energy Price Cap and What It Covers

From January 1 to March 31, 2025, the energy price cap for a typical household using a Direct Debit tariff is:

• £1,928 each year for electricity and gas together
• This is based on an estimated yearly use of:
  • 2,700 kWh of electricity
  • 11,500 kWh of gas

Current Unit Prices & Standing Charges (Jan–Mar 2025)

Even if wholesale energy prices go down, customers still face hidden costs. This means they can end up paying more for their energy bills, even with the price cap in place.

Standing Charges: Fixed Costs That Keep Rising

The standing charge is a daily fee for keeping the energy supply system running. This cost stays the same, no matter how much energy you use. It is different from unit prices, which can change based on your energy usage.

Why Are Standing Charges Increasing?

• Covers the costs of the network and maintaining the grid.
• Pays for energy suppliers that failed, like Bulb, Green, and Avro Energy.
• Includes environmental schemes such as the Energy Company Obligation (ECO4).

How Much Are You Paying in 2025?

• Electricity standing charge: £222.54 each year
• Gas standing charge: £115.62 each year

Even if you use less energy, you still cannot avoid these charges.

Regional Variations: Why Some Areas Pay More

The energy market in Great Britain is different in each region. This means that some places pay higher electricity bills than others. The costs vary because of network expenses and local supply issues.

For example, as of January 2025:

• London: £1,891 each year
• South West England: £1,988 each year
• North Scotland: £2,024 each year

If you live in northern England, Scotland, or Wales, you should expect higher energy bills compared to those in southern England.

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Debt Recovery Charges: Covering Supplier Failures

More than 30 energy suppliers have failed since 2021. This has created billions in unpaid bills. Consumers bear these costs.

• Ofgem’s recovery levy will add about £82 per year to energy bills.
• The Energy Bill Relief Scheme helped failed suppliers, but we are still recovering costs.

Higher energy bills now help pay for these supplier failures.

Environmental & Government Charges Hidden in Your Bill

Many government support programs and environmental schemes create added costs to your bill.

• Renewables Obligation (RO): Supports wind and solar energy.
• Energy Company Obligation (ECO4): Pays for home energy efficiency upgrades.
• Climate Change Levy (CCL): Affects business energy users.

These charges help fund green energy programs. However, they also raise energy bills.

Wholesale Energy Prices Have Fallen, So Why Aren’t Bills Lower?

Wholesale gas prices and electricity prices have gone down. However, consumers have not fully benefited from these savings because of:

• Fixed supplier contracts are causing delays in reducing expenses.
• Network costs and environmental fees are making costs stay high.
• There are debt recovery fees due to supplier failures.

This means that people may still experience rising energy prices, even when costs in the wholesale market decrease.

Payment Method Penalties: Why Direct Debit is Cheaper

The only way to pay a lower amount for each unit under the energy price cap is to use Direct Debit.

• Direct Debit customers: They pay the lowest rates.
• Standard credit (monthly bills): It costs £200 more each year.
• Prepayment meters: Users will pay £150 more each year.

To save money, always pick Direct Debit when you can.

How the Energy Price Cap Has Changed Over the Years

The energy price cap started in January 2019 by Ofgem. It was created to protect people from high charges on standard energy plans. Since the cap was introduced, it has changed several times. These changes happen because of shifts in wholesale energy costs and other market factors.

Historical Energy Price Cap Levels:

Note: The numbers above show the yearly limit for a typical household that pays using Direct Debit.

These changes happen mainly because of shifts in wholesale energy prices , infrastructure costs, and costs related to policies. The big rise during the energy crisis in late 2022 and early 2023 was caused by huge jumps in global gas prices. This affected the supply of fuels and raised costs for consumers.

Comparing Energy Costs: Direct Debit vs Prepayment Meters

Payment methods play a big role in the costs and fees that consumers have to pay. Usually, using Direct Debit gives better rates than using prepayment meters.

Cost Comparison by Payment Method (as of January 2025):

Note: Rates are indicative and may vary by region.

The higher costs of prepayment meters come from more administrative fees and maintenance of the infrastructure. People who use these meters usually deal with issues like high gas bills and have a hard time finding better pricing options.

Which UK Regions Pay the Most Under the Energy Price Cap?

Energy costs under the price cap can change based on different factors in each region. This includes the cost of infrastructure and how energy is distributed. As of October 2024, these regions had the highest average yearly bills:

Regional Energy Costs (Oct 2024):

Source: The Sun

The differences happen because of network costs, how people use energy in different places, and maintenance costs. For example, places with old equipment might have higher costs, and these costs are charged to consumers.

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How Energy-Efficient Appliances Can Lower Your Bills Under the Cap

Investing in energy-efficient appliances can greatly lower the amount of energy used. This can result in smaller annual bills, even with the current price cap in place.

Potential Savings with Energy-Efficient Appliances:

Calculations using an electricity rate of 24.86 pence for each kWh.

Upgrading to appliances that use less energy can lower how much electricity you use. This can help you save money on your energy bills. Also, improving the energy efficiency of properties with better insulation and newer heating systems can cut down on energy usage even more.

What Future Energy Price Cap Predictions Mean for Your Bills

Analysts expect the energy price cap to keep changing because of market ups and downs. This will affect energy bills for households throughout the UK. The energy crisis has revealed that outside factors, like movements in the wholesale market, global supply chain issues, and government actions, play a big role in setting maximum prices for consumers.

Projected Changes in the Energy Price Cap

Recent estimates show that the energy price cap may rise by 5% in April 2025. This would mean that the average cost for a household using both gas and electricity, and paying by Direct Debit, will be around £1,823 each year. Several factors are causing this expected increase.

• Higher wholesale energy prices are happening because of low gas grid storage levels in EU countries.
• Cold weather is increasing demand in Northern Ireland and the rest of Europe.
• Currency changes and uncertainty in politics are affecting the supply of fuels in the spot market.
• There are changes in energy efficiency targets, as laid out in the Energy Price Guarantee (EPG).

Impact of Market Trends on Energy Costs

In the past, energy prices often change quickly when the economy is unstable. The House of Commons has talked about whether the government should help more to stop another rise in electricity and gas bills. This is important especially for people who need more support.

Local area data shows that average gas prices in the EU are still changing. This affects the UK’s chance to get long-term energy contracts. Some European countries use types of assets like nuclear and hydropower. However, the UK depends a lot on imported natural gas. This makes the UK more at risk of price rises.

Government Response and Potential Support Measures

With rising energy prices, the government might look at a new package of support. This could be like past help under the Energy Price Guarantee. There are also talks about updating the old TDCVs, or Typical Domestic Consumption Values. These updates would show new lower TDCVs. Energy use has changed due to better efficiency and economic pressure.

• Possible return of the Energy Bill Support Scheme
• Specific discounts for low-income families
• More limits on prepayment meter prices

Will There Be Price Falls in Late 2025?

Some analysts think that prices may drop in late summer 2025. This will depend on global supply and demand. However, if gas storage levels stay low in EU countries, UK households might see rising energy prices until early March 2026.

To lessen the effects of price changes in the future, people should keep an eye on market trends. They should also look into the energy efficiency of properties. When needed, they can use the support packages that are available.

How to Reduce Hidden Costs on Your Energy Bill

You may not be able to avoid standing charges or VAT, but you can still lower your energy costs.

• Look for lower tariffs – Some suppliers have reduced charges.
• Apply for government support – The Household Support Fund and Warm Home Discount assist qualifying homes.
• Use energy-saving appliances – Less usage means lower bills.
• Pay by Direct Debit – This helps you avoid extra fees.
• Watch your usage – Smart meters assist in tracking and reducing electricity consumption.

The energy price cap helps control high prices. However, the only way to lower energy costs is to improve energy efficiency and pick the right tariff.

Final Thoughts

The energy price cap helps consumers, but there are still hidden costs. Things like standing charges, different prices in regions, environmental schemes, and fees from suppliers to recover debts can raise energy bills. This happens even as wholesale energy prices go down.

To lower your energy costs, you should pay attention to energy efficiency. You can also consider using Direct Debit and switching to a supplier that has lower standing charges. Since government support is limited, these are the main ways to cut hidden energy costs.

FAQs About Hidden Costs of the Energy Price Cap

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