What is the energy price cap and what does it mean for your family?

A new energy price cap has come into effect, but what actually is the energy price cap and what does it mean for your family?

The energy price cap was introduced to limit how much your energy supplier could charge you per unit (often referred to as kilowatt hours or kWh) of energy you use. The energy price cap is usually expressed as an average annual figure. Since it was introduced, the figure has gone up and down. Throughout the energy crisis, it's been at it's highest level ever, a whopping £4,279, leaving families incredibly concerned about how much their energy bills will cost. 

As the energy price cap got so high, the government introduced the Energy Price Guarantee to try and keep bills affordable. But that scheme ended at the end of June, and the energy price cap took over again. (We appreciate all this change is confusing so make sure you check out our price cap need-to-knows if you are completely flummoxed). But how will this affect how much you pay for your energy?

What is the current energy price cap?

The energy price cap is currently £1,923 per year based on typical use (and for those paying by direct debit). This means the average maximum prices you'll pay are 7p per kilowatt hour (kWh) for gas, and 27p per kWh for electricity. 

The stated figure is calculated as an average across the England, Scotland and Wales, but the price cap actually varies by region and how people pay their bill. Customers who pay by standard credit (cash or cheque), or have a prepayment meter pay slightly more based on the higher cost for energy companies to serve them.

The overall figure is also based on typical use - if you use more energy than the typical household, you will pay more than the cap.  

Since the energy price cap was introduced, most suppliers have set their default tariff prices very close to the maximum cap rate. But with the price cap dropping, we could see the return of more fixed price deals, and you might be able to save even more money by switching suppliers. 

Our calculator shows how your energy bills might change taking into account the latest announcement and price cap predictions.

Who sets the energy price cap?

The energy price cap is calculated and set by Ofgem, the energy regulator. It was introduced on 1 January 2019 to limit how much your energy supplier could charge you per kWh of energy usage.

However, given the energy crisis and demands for further assistance to help struggling families and businesses, the government introduced a temporary price cap, called the Energy Price Guarantee, which temporarily replaced the one set by Ofgem. Ofgem still announced its energy price cap at various points throughout the year, but says "the energy price cap level indicates how much consumers on their energy supplier’s basic tariff would pay if the EPG [Energy Price Guarantee] were not in place." 

The price cap sets a limit on what your supplier can charge you per unit of energy you use, making sure customers always pay a fair price. It also limits how much profit your supplier can make. It takes into account the wholesale price of gas, which has been soaring, which is why it rose so much in 2022. But wholesale prices are coming down and those reductions are being passed on to customers through a lower price cap.

Does the energy price cap apply to me?

The energy cap applies to anyone who is on a standard or default energy tariff. The standard tariff is the supplier's variable tariff, which can go up and down at any point in the year at the supplier's discretion. If you did not choose a tariff, then you are on a default tariff. It also applies to those with prepayment meters.  

The cap is also based on average use - so, you may pay more (or less) for your energy than the price cap depending on how much energy you use, and how you pay your bill. Paying by direct debit is cheaper than paying by cash or cheque.

If you are still on a fixed rate energy deal, where the price of your energy is locked at a set rate for a certain period, then the energy cap does not apply to you until your contract ends. A fixed contract is anything between 12 months to two years.

When the energy crisis began, many suppliers removed any fixed rate deals from the market as there were no good deals to be had. If your fixed rate deal came to an end, you will have been moved on to your suppliers standard tariff. But now prices are dropping, suppliers have started offering fixed price energy tariffs again, which might help to save you more money. Use a price comparison website, like our sister site Go.Compare, to see the latest energy deals.

How have energy price caps increased over time?

The energy price cap was £1,137 when it was introduced in January 2019 and now stands at £1,923. The price cap has gone up and down since it was introduced. From October 2020 to March 2021, during lockdown, the price cap was set at its lowest ever level of £1,042. But wholesale energy prices started to increase at the beginning of 2021 as the world emerged from lockdown. At its highest, the energy price cap spiked at £4,279 in January 2023.

How to find out if you’re on a price-capped tariff

You can find out if you are on a price-capped tariff by looking at your energy bill or online energy account. It's usually on the first page under the 'My tariff' section. (Our guide is really useful if you need your energy bill explained to help you understand what all the information means). 

You might have chosen a standard tariff when you picked your supplier, or you might have been put on a standard tariff if you moved house. If you were previously on a fixed tariff and didn’t take any action when it ended, you would have been automatically moved to your supplier’s standard tariff. If your supplier went bust and you were moved to a new supplier, you would have been put on its standard variable tariff. 

What should I do if I can’t afford to pay my energy bills?

If you can’t afford your energy bills, you’re not alone and help is available. In the first instance, speak to your energy supplier. They may be able to help create a more suitable payment plan or offer you support through one of their hardship funds. 

If that doesn’t prove enough, then there is other help with energy bills that is available.  

Personal finance expert Adam French says: “If you do find yourself struggling to pay your energy bills, my advice is to contact your energy provider and talk to them about a payment plan.

“But at all costs, do not cancel your direct debit, or stop paying energy bills. This will not only leave your energy account in debt – a debt which will have to be paid, it could possibly affect your credit history as your account will be in arrears and you could also end up with a court summons from your energy provider, it may also lead to future utility providers not allowing you to pay your bills by Direct Debit.” 

You could also see if you qualify for free gas and electric vouchers to help you cover the cost of high energy bills. Remember too that another cost of living payment for eligible families is due in autumn 2023.