What is the Energy Price Cap?
The energy price cap, set by the energy regulator Ofgem, limits the amount a supplier can charge for each unit of electricity and gas, as well as the standing charge.
It is not a cap on your total bill; rather, it is a cap on the unit rates. If you use more energy, your bill will be higher.
The cap is adjusted every three months to reflect wholesale energy costs.
How is it calculated?
Ofgem uses a 'typical household' consumption profile to calculate the price cap level.
The cap covers suppliers' costs of buying energy, network costs, operating costs, and a small profit margin.
It does not apply to fixed-term energy deals, which may be cheaper or more expensive than the capped rate.
Typical bill example
If your usage matches the 'typical' Ofgem profile, your annual bill should stay around the cap limit.
Using less energy results in a lower annual bill, regardless of the cap's headline figure.
Tariff types under the cap
Standard Variable Tariff (SVT)
The tariff that defaults to the price cap level if you haven't switched.
Prepayment meter tariffs
Also capped, but usually higher due to the different infrastructure costs.
Who does it help?
The price cap protects households on default tariffs from being overcharged by suppliers.
- 1
Standard tariff users
Provides price stability and protection against unfair price hikes.
- 2
Prepayment customers
Ensures they aren't unfairly penalised by supplier costs.
Who is eligible?
The cap applies automatically to all domestic gas and electricity customers in the UK.
Domestic gas and electricity: Applies to all households on standard variable tariffs.
Prepayment meter users: Also covered by the Ofgem cap protections.
How to compare energy tariffs
Follow these steps to make an informed choice:
- 1
Check unit rates
Compare your current unit rates against the price cap to see if you are paying less.
- 2
Look at standing charges
A lower unit rate might be offset by a higher daily standing charge.
- 3
Consider fixed deals
Fixed deals might be below the cap, providing certainty for 12-24 months.
Price cap pros and cons
Pros
- Prevents price gouging
- Provides a reference price for bills
- Protects most households
Cons
- Does not cap total bills
- Still susceptible to market volatility
- Fixed deals might offer better value
Why does it exist?
To stop suppliers from charging excessive amounts to customers who have never switched their energy supplier.
Potential risks
Engaging with the energy price cap requires care to ensure you don't overpay or miss critical protections.
For energy, failing to switch or manage your smart meter can lead to higher costs. For finance, errors on your report can lead to loan rejections.
Always use verified, independent sources like Ofgem or regulated financial services to compare options.
Alternatives
If the cap is too high, consider:
Switching to a cheaper fixed tariff
Locking in a rate can protect you from future price cap increases.
FAQs
About this guide
Written and reviewed by the Grow Your Business team, and kept up to date as rates, rules and provider terms change.
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