The energy price cap, set by Ofgem, is a popular
topic in the energy market. However, many people misunderstand it. Some believe it limits their total bill.
Others think all energy suppliers must follow this cap. In reality, the price cap only sets the highest rate
for energy units and the standing charge. Your actual bill still depends on how much energy you use.
In Great Britain and Northern Ireland, gas prices and energy costs vary a lot. It’s essential for people to
understand what the price cap is and what it doesn’t cover. Knowing this can help consumers manage their
energy costs better.
What Is the Energy Price Cap?
The Ofgem price cap sets a limit on how much energy suppliers can charge for each unit of electricity and gas. This cap is for customers with
a standard variable tariff (SVT). It gets checked every three months. This helps keep retail energy prices
fair and matches the costs in the wholesale market.
Key Facts About the Energy Price Cap
The current price cap from January to March 2025 is £1,928 per year for a typical household.
The next price cap for April 2025 is yet to be confirmed. We will know more in February 2025.
This price cap level is for variable tariffs only, not fixed tariffs.
A daily standing charge is part of the cap, but it can change depending on the region.
Users with prepayment meters usually have higher standing charges compared to direct debit customers.
Important: The price cap does not reduce your total bills. If you use more energy,
your bill will still be
higher.
Myth 1: The Energy
Price Cap Limits Your Total Bill
The price cap does not focus on the total bill. Instead, it sets a limit on the highest price for each unit
of energy and the daily standing charge. If a household uses more energy, their bill will go up.
The average household pays close to the price cap level. Still, customers who use more energy will have to
pay more.
Myth 2:
The Energy Price Cap Means Energy Bills Will Go Down
❌ False: The price cap limits how much energy
companiescan charge for each kilowatt hour (kWh). But, energy costs are still connected to the
wholesale cost of energy. If wholesale energy prices remain high, then energy bills will also stay high.
✔ Fact: The end of the government’s Energy Price Guarantee (EPG) in March 2023 means that future price cap
levels could be higher than we expected. This is particularly likely during the winter months.
Myth 3: All Customers Pay the Same Price Under the Energy Price Cap
❌ False: The cap varies based on:
Type of tariff (a standard variable tariff or a fixed energy deal)
Payment method (direct debit, prepayment meter, or standard credit)
Region (standing charges can vary i n Great Britain)
✔ Fact: Prepayment customers often pay more in standing charges. Dual fuel customers may pay less than those
who only use one fuel type.
Myth 4:
Fixed Tariffs Are More Expensive Than the Price Cap
Not all the time. Many fixed energy deals cost more than the price cap in 2023 and 2024. But now, some new
fixed tariffs might be cheaper than variable tariffs.
✔ Fact: Ofgem’s price cap only affects variable tariffs. Fixed deals can offer better rates when wholesale
energy prices are stable.
Myth 5: The
Price Cap Stops Suppliers from Raising Prices
The statement is incorrect. The price cap changes every three months. This means the rates can increase if
the cost of energy goes up.
The House of Commons is discussing support schemes for energy bills. But, if they do not add new financial
support, prices may continue to fluctuate.
Who Is Affected by the Energy Price
Cap?
Customer Type
Does the Price Cap Apply?
Notes
Direct Debit Customers
✅ Yes
Cheapest payment method under the cap
Prepayment Customers
✅ Yes
Often face higher standing charges
Dual Fuel Customers
✅ Yes
Gas + electricity under one tariff
Fixed Tariff Customers
❌ No
Fixed rates are outside the cap
Business Energy Users
❌ No
Businesses have separate tariffs
The price cap mainly impacts domestic customers who have a standard variable tariff.
Why Do Energy
Prices Still Feel High Despite the Price Cap?
Daily standing charges are still high. Even if unit prices drop, the daily standing charge makes the
total
bill higher.
Wholesale energy prices are not stable. The wholesale market impacts the levels of the
future price cap.
Government support for energy bills has finished. The Warm Home Discount is still
available, but other programs are not active anymore.
Prices vary by region. Standing charges differ
in England, Scotland, and Wales, affecting the total bills.
For many homes, it might be better to switch to a cheaper fixed tariff now instead of keeping a
variable
tariff with a cap.
How Often Does the
Energy Price Cap Change & What Affects It?
A lot of people want to know two things: “How often does Ofgem change the energy price cap?” and
“What
factors affect the price cap?”
Quarterly updates – Every year in January, April, July, and October, we review the cap.
Wholesale energy prices – Changes in gas prices and the wholesale market greatly impact the cap
adjustments.
Government policies – Discussions in the House of Commons and support schemes for energy bills can
affect the price cap limits.
Supplier operating costs – Costs for managing networks, reading meters, and customer service are part of
the cap calculations.
Does the Energy Price Cap
Affect Standing Charges?
Many people are curious about why the standing charges are so high under the energy price cap.
The price cap limits how high standing charges can be. Still, these rates differ depending on your
location and your supplier.
The daily standing charge remains high, even when unit rates drop.
Customers who use prepayment meters usually pay more due to extra network costs.
The Ofgem price cap does not fully manage standing charges, leading to significant price differences
across Great Britain.
How the Energy
Price Cap Compares to Historical Energy Prices
Why? A lot of people want to know, “How does the energy price cap now compare to past years?”
Energy price trends – Check the price cap levels from 2020 to 2025.
Impact of global events – Understand how gas shortages, the war in Ukraine, and inflation have changed
the cap.
Wholesale energy cost fluctuations – Learn how the wholesale market influences retail energy prices.
Future price cap levels – Experts forecast what the price cap might be for 2025 and later based on
previous trends.
How to Reduce Your Energy
Bill Under the Price Cap
Monitor your energy use. This helps reduce waste and keeps you within typical domestic consumption
values.
Consider a fixed energy deal. Some fixed prices could be lower than the current price cap rates.
Use a smart meter. A smart meter shows you your unit of electricity and gas usage in real-time.
Apply for financial support. See if you can get the Warm Home Discount, Household Support Fund, or other
help from the government.
Compare energy suppliers. Some energy companies may offer cheaper tariffs than the standard variable
rate.
Households can manage energy costs more easily by following these steps. This is true even if the
price
cap changes.
Understanding the Price Cap &
Taking Action
The energy price cap does not limit total bills. It caps the unit rate and the standing charge instead.
Prices can change every three months, so it’s important to keep an eye on them.
Customers should consider fixed tariffs. Some deals could be cheaper than the price cap rates.
There is government help available. You can see if you qualify for the Warm Home Discount or other types
of financial support.
FAQs About the Energy Price Cap
How
does Ofgem calculate the energy price cap?
Ofgem decides the price limit by looking at a few things. These things are the cost of wholesale
energy, network costs, costs from suppliers, and the costs related to government policies.
Does the energy price cap apply to all customers?
This rule only impacts customers with standard variable tariffs. It does not apply to people who
have fixed energy deals or business energy tariffs.
When will the next energy price cap be announced?
The price cap for April 2025 will be announced in February 2025.
Will
the energy price cap go down in 2025?
Price cap predictions suggest that prices could remain high. This is due to unclear conditions in
the wholesale market.
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