Energy price cap: what you need to know
For many of us, three little words have become the focus of our finances: energy price cap. Only a few months ago, we would have glazed over at the mention of unit prices, standing charges and kilowatt-hours but now, almost every household has a new interest in energy costs, and rightly so. This guide to the current energy situation answers many of the most commonly-asked questions and features advice for confused households.
What is the energy price cap?
The price cap sets out the maximum amount that can be charged per unit of gas and electricity, and it caps the daily standing charge too. The cap was introduced in 2019 to stop consumers on variable tariffs from being ripped off. It’s worth noting that the price cap pertains to the cost of a unit of energy and an average consumption – there’s no upper limit to how much a household can be billed. If you use more energy than the average family, you’ll pay more.
The energy price cap isn’t a fixed figure either and it has been rising since October 2021. The cap reflects what suppliers pay for energy on the wholesale market and the cost of supplying the energy to our homes, plus it covers the profit the energy supplier can make.
Does the energy price cap apply to me?
The energy price cap applies to consumers on a supplier’s standard variable tariff (SVT).
Those on a fixed-rate tariff will continue paying their current energy prices until their fixed-term expires. If the consumer doesn’t fix in again, they’ll automatically be moved to the SVT. Households most likely to be on a SVT include those who have never switched tariffs or suppliers, those who were with a supplier that went bust and those who changed supplier when they moved home.
Why is the energy price cap rising?
Global wholesale gas prices have been rising for some time now, with costs soaring as the world returned to relative normal after the Covid pandemic. The situation has been made worse as one of our main energy producers, Russia, is beginning to switch off gas supplies to Europe. Between 1st October 2021 and 21st March 2022, the cap rose just 12%. On 1st October 2022, the increase will be 80%, illustrating how much more expensive energy is to buy.
How much is the energy price cap now?
As of 26th August 2022, the energy price cap stands at £1,971. From 1st October 2022, the cap will rise to £3,549 per year. This is based on a dual fuel deal for an average household who pay their bills via direct debit.
Will it rise again soon?
Ofgem have warned that the cap will probably increase again in 2023 as the energy market looks set to remain volatile. It’s estimated that the cap will rise another 50% in January 2023, to £5,387.
Should I opt for a fixed deal now?
Many households like a fixed deal tariff as it guarantees how much they can be charged for each unit of energy. A fixed deal has traditionally been much cheaper than a supplier’s SVT but all that has changed. Currently there are no fixed deals that are cheaper than the energy price cap and the advice is not to switch to a fixed product without careful consideration.
The fixed deals that do exist involve the bill payer taking a risk that the fixed price they are offered becomes cheaper than the energy price cap by the time the cap rises take full effect. As many cap rises are just predictions at this stage, no one can guarantee today’s fixed deals will save a household money.
Should I stop my monthly direct debit?
It’s worth noting that there are energy price cap variations according to how you pay. It favours those who pay by monthly direct debit, as suppliers consider this to be the most straightforward transaction and, therefore, energy is cheaper to supply to those with a monthly direct debit.
The cost to supply energy to those on prepayment meters and those who pay by cash, cheque and quarterly direct debit is higher, due to increased admin and maintenance. As an illustration, money saving expert Martin Lewis calculates it will cost £251 more a year for households who stop paying by monthly direct debit.
Is there any help with energy bills available?
Almost every household will receive a discount of £400 off their energy bills this coming winter. The Government-funded Energy Bills Support Scheme will be actioned by the energy suppliers and will see energy bills automatically reduced by £66 per month in October and November 2022, and by £67 between December 2022 and March 2023. Citizens Advice has a useful list of other energy bill rebates, benefits and vouchers available to qualifying households and bill payers.
Are there any good energy saving tips?
With a lack of clear cut, money-saving fixed deals, the best way to save money is to use less gas and electricity. MoneySavingExpert.com regularly updates its energy saving advice and its tips are a sensible place to start.
Looking at the bigger picture, living in a property with a good EPC rating will save you money on your energy bills. If you’d like to move to a more energy efficient property, please contact us for a list of available properties.
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