Energy Price Cap

What is the Energy Price Cap?
How does it work and how much is it?

The Energy Price Cap, which controls what most households pay for energy, fell by 7% on average on 1 July 2024. We’ve full info below on what the Cap is and how it works.

What is the Price Cap? How does it work? How much is it? Plus much more

The Price Cap was introduced on 1 January 2019 by regulator Ofgem, with the aim of preventing the millions of households on expensive variable tariffs from being ripped off.

The price cap restricts the amount you are charged for each unit of gas and electricity consumed, as well as establishing a highest permissible daily standing charge for maintaining your home’s grid connection. This cap primarily reflects wholesale energy costs paid by companies and is applicable solely to standard and default tariffs offered by providers, which are the plans used by most households today.

On 1 July, the Price Cap fell to £1,568 a year for a typical use household paying by Direct Debit. Though remember, it’s the rates that are capped, so use more and you pay more. To see how this will affect your bill, see our Energy Price Cap calculator.

Q – When and how will the Price Cap next change?

A – The Energy Price Cap fell by 7% on 1 July, to £1,568 a year for a typical dual-fuel household paying by Direct Debit.

Bear in mind that each Price Cap only last three months, with the Cap predicted to rise in October 2024.

Q – What are the Price Cap assessment periods?

A – The Price Cap changes every three months, in January, April, July and October.

Price Cap changes are largely based on the costs suppliers face for providing energy – though there are a number of other factors that affect the Cap.

Do note it has also given itself the power to change the Cap at points during ‘exceptional circumstances’.

Q – What are the unit rates and standing charges under the Price Cap?

A – The Price Cap sets a limit on the rates you pay. For a region-by-region breakdown of what you’re currently paying, see our Energy Price Cap rates guide.

The table below shows the average unit rates per kilowatt hour (kWh) and standing charges per day (these vary by region) under the current Price Cap from 1 July to 30 September 2024.

Q – What are daily standing charges for?

A – You have to pay to have access to energy even if you don’t use it through what’s known as the daily standing charge. If you’ve both gas and electricity, the average Direct Debit standing charge is currently £334/year before you use owt.

We have long campaigned for standing charges to be lowered, arguing that they unfairly penalise households on lower incomes and those looking to cut their usage.

Ofgem launched a public review, of these charges, asking bill-payers, suppliers, charities and consumer groups for their views on standing charges and how an alternative system could work.

It’s also worth noting there are variances in standing charges by region (for example, if paying by Direct Debit in London it’s £266/year, in Northern Region it’s £375/year) – Ofgem says it is due to the different costs to transport power to where you live.

Q – How does the Energy Price Cap work?

A – The Price Cap sets a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid).

That means there’s no upper limit to what you actually pay – if you use more energy, you’ll pay more, use less and you’ll pay less.

It only applies to providers’ standard and default tariffs, so if you’re on a fixed-term energy deal, the Cap doesn’t apply.

If you’ve not switched in the last year or so, it’s likely you’re on a capped tariff.

Q – How has the Price Cap changed over time? 

A – The Energy Price Cap now changes every three months (previously it was every six) – mainly based on average energy wholesale prices in the months leading up to each change (see How is the Price Cap calculated? for more info). As a result, the average price of the Cap, based on typical use, has fluctuated since it was first introduced in 2019.

It’s worth noting that between October 2022 and June 2023, no one paid the full amount under the Price Cap, as prices were discounted under the Energy Price Guarantee (EPG) scheme.

Q – How do I know if I’m on a price-capped tariff?

A – The Price Cap applies to ‘default’ tariffs – ones you don’t actively choose to switch to – whether you pay by Direct Debit, cash or cheque, or prepayment. These tariffs are generally known as standard variable tariffs (SVTs), and you’ll be on one if any of the below apply.

But right now, due to the recent energy crisis, almost everyone is on a price-capped. You’ll be on a price-capped tariff if:

• You’ve never switched your energy tariff. You would have always been on your supplier’s standard tariff, so you will be protected by the Price Cap.
• You were on a fixed deal, but haven’t chosen to switch again. If you have previously chosen a fixed deal, once the fix period ends you will be automatically rolled on to a price-capped tariff if you do nothing.
• You were with a supplier that has gone bust. In most cases, if your supplier goes bust, your existing tariff with that supplier will end, Ofgem will pick a new supplier to take over and you’ll be moved to that provider’s standard tariff, which is protected by the Price Cap.
• You’re moving home. Usually when you move home, your current tariff will end when you let your supplier know you’re moving out (a few let you transfer fixed deals, so do check).You’ll then need to contact the existing supplier of the property you’re moving into, to let them know when you moved in and to set you up with a new account. From the date you moved in, you’ll be placed on a ‘default’ tariff, which is controlled by the Price Cap.

The Price Cap also doesn’t apply to any standard variable tariffs that have an exemption to the Price Cap (this is only for very green deals, and you still have to choose to be on them).

Q – Does the Price Cap change depending on how I pay?

A – Yes. The Price Cap is set differently for those that pay by monthly Direct Debit, those that pay quarterly or on the receipt of a bill, and for those that prepay for their energy:

• If you pay by Direct Debit, from 1 July to 30 September 2024, the Price Cap for a typical household is £1,568 a year.
• If you pay by cash, cheque or quarterly Direct Debit, the Price Cap is £1,668 a year on typical use.Ofgem says this is higher than paying by Direct Debit to reflect the additional costs from suppliers to bill those that don’t pay by monthly Direct Debit.
• If you prepay for your energy, the Price Cap is £1,522 a year on typical use.

Q – How is the Price Cap calculated?

A – The Price Cap is calculated based on a range of costs energy suppliers face. The largest cost is wholesale energy – what energy suppliers pay for gas and electricity. This accounts for about 39% of a typical bill for a tariff priced at the maximum allowed under the current Price Cap from 1 June to 30 September 2024.

It’s also what causes most of the change to the Price Cap every three months, as wholesale prices are constantly fluctuating.

Other elements include things such as the costs of maintaining the pipes and wires that carry gas and electricity, or the operating costs suppliers face for billing customers and providing metering services. See the full list below.

Ofgem can also add on any unexpected costs to the Price Cap

There’s also what’s known as an ‘adjustment allowance’, which allows Ofgem to factor any special, unexpected costs into the price – for example, Ofgem has added the costs resulting from the spate of suppliers that failed in winter 2021/2022 to the Price Cap. About £28 of the typical £1,568 a year bill under the current Price Cap is for supplier failures.

Other costs include network, operating and policy costs

Other than wholesale energy costs and the special adjustment allowances, the Price Cap is also made up of the following:

• Network costs. This is the costs suppliers face for building, maintaining and operating the pipes and wires that carry energy to households. It accounts for about 23% of a typical bill under the current Price Cap.
• Operating costs. This covers the cost of billing and metering services, including the cost of the smart meter rollout. It accounts for about 14% of the current Price Cap on typical use.
• Policy costs. This is to support Government environmental and social schemes to help households save energy, to reduce emissions and to encourage homes to get solar panels and similar renewable energy tech. It accounts for about 12% of a typical bill under the current Price Cap.
• VAT. For energy, this is set at 5%, which is added to the price of all tariff rates.
• Earnings. This is the part of the bill that is profit for a supplier – Ofgem says it allows for a ‘fair rate of return’ for suppliers. It accounts for around 2% of a typical bill under the Price Cap.
• Payment method allowance. This is to cover the cost of taking monthly Direct Debits, billing people quarterly by cash, cheque or Direct Debit, or billing by prepayment. How much this is depends on the payment method – for those on the monthly Direct Debit cap, it’s under 1%. For those paying by quarterly Direct Debit, cash or cheque, it’s a lot more.
• Other costs. There are a few other small costs Ofgem accounts for, such as what’s known as a ‘headroom allowance’, which is supposed to help with any unexpected costs.

Q – How long will energy prices be capped for?

A – When it was first introduced, the Cap was set to remain in place until at least the end of 2020, although the Government has announced its intention to allow the Price Cap to be extended beyond 2024 if required.