Energy price cap explained

The energy price cap limits the maximum amount energy suppliers can charge you for each unit of gas or electricity you use.

The energy regulator for Great Britain, Ofgem, first introduced the price cap in 2019 because of concerns that customers were paying a ‘loyalty penalty’.

Many customers weren’t readily switching energy suppliers and some energy companies were pushing up their prices. The cap sets a limit to the unit rate of gas and electricity a supplier can charge to protect consumers against this loyalty penalty.

The price cap is reviewed every three months.

An increasing amount of our electricity comes from renewable sources like solar and wind. But the UK still relies on gas to meet demand when renewables aren’t generating enough energy.

Electricity demand tends to be high when the sun sets and renewable sources are less likely to be generating enough. This means we have to turn to gas to meet this demand, which is more expensive and drives up our bills.

The energy price cap limits the amount that a supplier can charge for their default tariff. This includes:

• The standing charge: a daily fixed amount you have to pay, no matter how much energy you use.
• The price for each unit of electricity and gas you use, measured in pence per kilowatt hours, or p/kWh.  

A default energy tariff, according to Ofgem, is the most basic tariff an energy supplier offers. The most common type is a ‘standard variable’ tariff. This means the amount you pay is subject to price changes, although your supplier should write to you to confirm any changes with a notice period. A standard variable tariff can’t be higher than the price cap.  

To show what this might look like for an average household, Ofgem uses:

• 12,000kWh for a household’s annual gas use
• 2,900kWh for annual electricity use

This is just a guide. Your actual bills will vary depending on how much energy you use.

Whether you pay by direct debit and the type of energy meter you have can also impact how much you pay.

The price cap applies to you if you’re on a default energy tariff, regardless of how you pay your bills or if you’re on a prepayment meter. 

Energy suppliers have different names for their default tariffs. If you aren’t sure what tariff you’re on, your energy supplier will be able to tell you. 

The price cap doesn’t apply to you if:

• You’re on a fixed-term energy tariff, ie a tariff with a fixed end date and agreed fixed per unit price. 
• You’re on a certain type of tariff. For example, some green tariffs and special time of use tariffs. 

If you’re not sure what tariff you’re on, check your energy bill or contact your energy supplier.

You’re likely to be on your energy supplier’s standard variable tariff if:

• Your supplier has gone bust and you’re moved to a new supplier. This happened at the height of the energy crisis and isn’t that common now.
• You’ve come to the end of a fixed term contract.

Ofgem reviews the energy price cap every three months. The next review will be for the period 1 October to 31 December 2024 and Ofgem will confirm the new price cap on 27 August 2024.

We know that for many households the price of energy bills is still a worry. But help is available.

You can lower your energy bills by £314 a year in Great Britain (GB) and £493 in Northern Ireland (NI) by following our quick tips to save energy.

If you’re looking to save money over the long-term, there’s also financial support for making your home more energy efficient.