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The Latest Increase to the Energy Price Cap
As of 1 April, the energy price cap has increased by 54% to £1,971/yr – an increase of £693 for a typical household.
In This Article
What Is the Energy Price Cap?
In 2019, Ofgem, the gas and electricity regulator, announced the energy price cap. The cap was brought in to force suppliers to scrap their excess charges, ultimately reducing the price of default and standard variable tariffs for their customers.
The energy price cap sets a limit on the amount you can pay per unit of gas & electricity. For this reason, it isn’t a maximum anyone will pay – the more you use, the more you pay!
The price cap level is updated in April and October every year. Currently, someone on a standard or default tariff, paying by direct debit and using a typical amount of energy, will pay £1,971/yr on average. An increase of 54% from its previous level of £1,277/yr.
What You Need to Know
What’s Changing?
As of 1 April, energy prices increased for millions of households in the UK. Most average households on a default or standard tariff and paying by direct debit would have seen a rise of around £693/yr. If you’re on prepay, you also saw an increase of 54%, increasing the cost of typical use to £2,017/yr.
Why Is It increasing?
Ofgem states the increase mainly covers the cost of increasing wholesale prices, i.e. the cost your supplier pays for the energy. In simple terms, energy companies need to charge you more than what they paid for gas and electricity.
Who Does It Affect?
The price cap increase affects standard and default tariff customers who haven’t switched to a fixed deal, and those with their new supplier after their previous supplier has exited the market. The price cap doesn’t apply to fixed-term deals.
The Next Price Cap
The next price cap will be announced in August and will take effect on 1 October. The amount will be dependent on the market prices between February and July. So far, wholesale costs are still high, and a further increase in the price cap is expected.
Should I Move From the Price Cap to a Fixed-Term Deal?
This is an extremely difficult question. Currently, the lowest fixed prices are still far higher than the price cap level. So if you were to fix, it would be with the expectation that the price cap will rise and be more expensive than your fixed deal. However, if energy prices fall, you may miss out on the new cheaper rates.
Without knowing the future costs of energy, we would hate to point you in the wrong direction. Some individuals may prefer to ride the wave and wait for future prices, whereas some may prefer to fix and have price certainty for the duration of the deal. Please be sure to do your own calculations before making a decision.
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