What is the energy price cap? Is it a jaunty little hat you wear when you’re out jogging? Is it part of the uniform for people who go round to customer’s houses and read their meters? Is it like a baseball cap, only with batteries? You’ll be shocked to hear that none of these are true (though if you want to call your baseball cap an ‘energy cap’ then who are we to stop you?).
No, the energy price cap is a mechanism designed to stop you paying more than is absolutely necessary for your gas and electricity. This page is where you’ll see the energy price cap explained, but also where you’ll find out that it’s not the answer to keeping your energy bills lower. It’s a bit like a cake shop promising not to charge more than £2.50 for a cream cake. That’s very nice of them, thank you, but it doesn’t stop the cake shop next door being even better value, does it? A ‘maximum’ sounds good until you remember there are lower numbers too.
Just in case the cake metaphor has confused you, or simply made you think about doughnuts when you’re trying to concentrate on energy bills, we promise to answer the question: ‘How does the new energy price cap work?’.
So how does the new energy price cap work?
Well, as the word ‘new’ suggests, it was only introduced in 2019 by Ofgem.
Who, what or where is OFGEM?
Ofgem is the government body given the job of making sure that energy companies charge fair prices and behave in a reasonable manner. If you have an issue with your energy supplier, and your supplier isn’t making things better for you, then you can first check the Ofgem website to see if they’re following the industry guidelines and then, if you’re still not satisfied eight weeks later you can complain to the energy ombudsman.
The energy cap applies to anyone who is on the default tariff offered by a supplier. The default tariff is a standard variable tariff, which means that it goes up or down as the price of energy goes up or down for your supplier (though it goes up more often and much more quickly than it comes down).
The default tariff is what happens if you’re one of the more than 54% of UK households who haven’t switched energy suppliers for the past three years. As a gesture to reward you for being so loyal to them, your supplier will make sure that you’re on the most expensive tariff they have, paying much more for exactly the same gas and electricity being enjoyed by all those people who did the smart thing and switched. Sounds a bit backwards if you ask us.
So the energy price cap is an attempt to at least limit the degree to which you get taken advantage of by trusting the energy companies to provide you with the best possible deal. The latest energy price cap was set in April 2019 at a level of £1,254.
So the most I’ll pay for gas and electricity is £1,254?
No, that’s not how it works.
In fact, the phrase ‘price cap’ is a bit misleading, so we’ll say that again, only louder. NO, THAT’S NOT HOW IT WORKS. The level of the price cap is based on what Ofgem calls a ‘typical user’, which means that it applies to the price per unit, and will reach the level of the cap if you use the exact average UK amount of gas and electricity.
That’s not very likely…
No it’s not, and you have to remember that the cap can also go up and down if the cost of wholesale energy fluctuates. It’s also different in different parts of the country, based on Ofgem calculations of how much it costs your supplier to get your energy to you. If you use more than the average amount, then you’ll pay more than £1,254. You should also remember that the figure of £1,254 is based on a user who pays by monthly direct debit, which is almost always the cheapest way to pay. If you pay as the bills arrive, or by quarterly direct debit, then the level of the cap rises to £1,344.
Will it affect my other discounts?
If you’re entitled to a discount such as the Warm Home Discount it won’t be affected by the energy price cap.
Do the Big Six companies apply the energy price cap?
What the energy price cap doesn’t mean
The energy price cap doesn’t mean you’re paying as little as you might be for your energy. You can still end up paying more than you should, particularly if you use too much energy because of a failure to take simple steps like insulating your loft, buying energy efficient appliances and only putting in as much water as you need when you boil the kettle.
Although the price per unit is capped, a standard variable tariff will still be more expensive than many of the other fixed tariff deals which are available.
Rather than sitting back and relying on Ofgem and the energy companies to keep your bills down, come to WeFlip.
We’ll make sure you’re on the best value tariff you could be, and our ‘cap’ means we’ll switch you again every time you could save money.