The Price Cap

The Energy Price Cap

Energy prices are rapidly increasing due to the rising cost of fossil fuels. Not only has the cap level risen twice in the same year for the first time, but the level is at its highest ever point. Ofgem has announced that it will be raising the energy price cap…

Energy prices are rapidly increasing due to the rising cost of fossil fuels. Not only has the cap level risen twice in the same year for the first time, but the level is at its highest ever point.

Ofgem has announced that it will be raising the energy price cap in response to the rising cost of energy. We understand the increase is worrying for many people, so we have put together a breakdown of everything you need to know about the Energy Price Cap.

What is the Energy Price Cap?

The price cap was introduced on 1st January 2019 by regulator Ofgem with the aim to limit what suppliers can charge an average user on a default energy tariff, whether you pay by direct debit, standard credit, or a prepayment meter

It sets a limit on the amount suppliers can charge for each unit of gas and electricity you use and sets a daily standing charge.

Ofgem set a cap level depending on the costs in the energy market. The price cap changes twice a year. Once in April for spring and summer then again in august for winter.

In August 2021 a new cap rate was announced at £1,277, a 12% increase on the previous cap, the new rate was implemented in October 2021. Ofgem has now announced that the energy price cap will rise by 54% on 1 April 2022.

This is the largest rise in energy prices to date, therefore, it is important to have A rated heating systems installed in your home and to utilise comparison tools for the best utilities tariff.

Who does the Energy Price Cap affect?

The price cap applies to domestic energy customers paying standard tariffs. Those on fixed energy tariffs are only affected if they forget to renew.

It does not limit how much you’ll pay for your energy bills just the rates you pay for your energy.

How is the price cap level set?

Ofgem set the price cap level based on an estimate of how much it costs an efficient supplier to provide gas and/or electricity services to a customer. Ofgem also factor in –

> Wholesale energy costs

> Network costs

> Policy costs

> Operating costs

> Payment method uplift allowance

> Headroom allowance

> Earnings before interest and taxes

> VAT

While the prices of energy bills are rising there are a few things you can do to make sure you are saving as much money as you can.  We recommend that you shop around to find the best price and that you have efficient heating systems installed.

You could also have a look into whether you are eligible for any of the schemes which are currently running.

The Warm Home Discount Scheme

The government have extended eligibility and increased the payment from £140 to £150. You can read more about this on the Government website https://www.gov.uk/the-warm-home-discount-scheme

The Energy Bill Discount Scheme

Chancellor Rishi Sunak announced £9.1 billion Energy Bills Rebate to support households with rising global energy prices. It will provide families with an upfront discount on their bills worth £200. Customers will pay back the discount in equal instalments over five years, starting from 2023. Further details on this scheme are expected to be confirmed in the spring.

All the data used in article was correct at time of publication.

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