The energy price cap is a reflection of the volatile energy prices on the wholesale market. And, with the cap now updated quarterly by Ofgem, it’s a good idea to make sure you are always prepared for these updates.
The current price cap (1 July – 30 September 2024) is set at £1,568 per year for a typical household who use gas and electricity and pay by Direct Debit.
And, although not officially announced by Ofgem just yet, independent energy research firm Cornwall Insight have estimated the cap is set to increase to £1,723 for the next period (October 1 - December 31 2024).
But what exactly is the energy price cap, and how will it affect your bills?
What is the energy price cap?
The energy price cap sets a maximum price that a supplier can charge its customers for each unit of energy (measured in kilowatt hours, or kWh) used while on the standard variable tariff (SVT), also known as the default tariff.
The price cap also includes a maximum price that can be applied by suppliers for their standing charge (the fixed daily amount you pay in order to stay connected to the grid).
What is a ‘typical household’?
To help energy customers understand what they may be paying under the price cap, the energy regulator Ofgem has introduced Typical Domestic Consumption Values (TDCVs).
According to Ofgem, an energy customer with typical usage uses 2,700kWh per year of electricity and 11,500kWh per year of gas.
Although this can be helpful as a guide, it’s important to realise that there is no limit on the cap, and your energy use may be higher or lower than what is considered typical. How much you pay will also vary depending on where in the country you live, with Ofgem’s figures representing the national average.
How far in advance does Ofgem announce each price cap change?
The price cap is updated every three months (quarterly) – Q1 (January to March inclusive), Q2 (April to June inclusive), Q3 (July to September inclusive) and Q4 (October to December inclusive).
Ofgem announces the new cap levels about a month in advance of the new cap period starting.
How is the Price Cap calculated?
The Price Cap is set by Ofgem and uses estimates of varying costs they believe suppliers will face over the following price cap period, which is three months. The biggest cost to be factored in is the wholesale price of energy, followed by network costs, supplier operating costs, payment method costs, and the costs of government policy. These costs are all passed on to the customer.
The price cap also allows a notional allowance for supplier profits of just over 1.9% of revenue, although recently profits for many suppliers have been much higher. VAT is also added in at 5%.
What should I do to prepare for the next price cap change?
Whether you are on a fixed deal or the SVT (Standard Variable Tariff), there are a number of steps you can take to help ensure you are prepared for whenever the price cap changes.
If you are already on a fixed deal
If you’re already on a fixed deal, it’s still a good idea to check what you’re currently paying and to pay attention to when your tariff is due to expire.
And, if you’re in the final 49 days of your deal, you can switch to a new supplier without incurring any exit fees.
How can I find out when my fixed energy deal ends?
There are a few ways you can find out when your tariff is due to expire. These include:
Checking your latest energy bill: If you’re currently on a fixed deal, the end date will be printed on your bill. It will also have details such as the name of the tariff you’re on and your account number.
Call your energy provider: If you can’t locate a copy of a recent energy bill, call your supplier. They will be able to provide details of your tariff, including its end date.
You will receive an end of tariff notification from your suppliers: Under Ofgem regulations, all energy suppliers are now legally obligated to notify their customers when their tariff is coming to an end. This notification should arrive within the last 49 days of your contract and confirms that you are able to switch within this period (and anytime thereafter) without incurring any exit fees.
If you are currently on the SVT
Since around March 2024, a number of energy suppliers have begun offering fixed deals priced either equivalent to, or slightly lower than the current price cap.
Although the fixed deals on offer are still limited, and although it may seem that being on a fixed deal that is priced close to the cap is pointless, by securing a fixed price for your energy, you will be “locking in” the price you pay for your gas and electricity for at least the next 12 months.
This can not only help you to budget your monthly bills better, but will also protect you from any price cap rises that may occur during the time in which your deal is in place.
How can I check what energy deals are available?
You can use our address checker to run a comparison on what deals are available at your address.
Is there anything else I can do to limit how much I’m charged while on the SVT?
If you’re still currently on the SVT with your existing supplier, and therefore tied to the volatility of the energy price cap, there are still some steps you can take to help reduce the amount of energy you use in and around your home.
Ensure that your meter readings are up to date
If you have either a traditional or smart meter that has turned ‘dumb’ it is important that you regularly take meter readings and submit them to your supplier.
It’s also a good idea to take a reading the day before the new price cap comes into effect.
Taking regular readings is a good habit to get into, as it helps ensure your bills remain accurate. If your supplier is simply relying on estimates, you could end up over or underpaying for your energy.
Keep track of your energy usage
Although your energy bills will likely be lower over the summer period, energy is still much higher than it was prior to the energy crisis. So, if you’ve got a smart meter, it’s a good idea to use your IHD (In-Home Display) that comes included from your supplier when your smart meter is installed.
Your IHD shows how much energy you’re using in two ways:-
⁃ How much energy you’re using measured in kilowatt hours (kWh)
⁃ How much your energy use is costing you
For most IHDs, readings update every 10 seconds for electricity and every 30 minutes for gas. By keeping track of what you’re using and when, you can learn how and where you can make changes to save on your usage.
Reconfigure how you use your existing appliances, and consider replacing older models with newer, more energy-efficient ones
As mentioned above, by keeping tabs on your energy usage, you may spot some ways on how you can change your existing habits to make a difference to the energy efficiency of your home.
For example, switching to running cold water cycles for at least some of your laundry loads could help you save. According to GE, an estimated 75 to 90 percent of all the energy used by your washing machine goes to warming up the water, so doing your loads of laundry on a cold wash could help you reduce your energy consumption.
Replacing old appliances with modern ones with a higher energy efficiency rating can help your bills, as they require less energy to operate. But if you can’t afford to replace any appliances right now, taking other measures - such as switching off your appliances at the wall point when not in use - can help you be more energy efficient.
Implementing other changes – such as opting to air dry your clothes in the warmer months instead of using a tumble dryer, or only running the dishwasher when you have a full load of washing up can also be a step towards helping you save on your bills moving forward.
Check whether you're eligible for any government-run or supplier-supported energy schemes and support funds
In addition to certain government energy grants and schemes, some suppliers offer financial aid through support funds. These support funds are chiefly designed to help customers who are struggling to keep on top of their energy bills.
Some funds provide direct financial assistance to get you out of energy debt. Others pay to replace broken or irreparable white goods, helping to make them more energy efficient in the process.
Eligibility for aid from energy supplier support funds vary. And, depending on demand, application windows may open or close earlier than anticipated.
Consider whether the government’s ECO scheme could help make your home more energy efficient
The Energy Company Obligation (ECO) is a government-run energy efficiency scheme. It is designed to help improve the energy efficiency of low income and vulnerable households across Great Britain.
The scheme has had 4 interations, with the current version being ECO4. It began in April 2022 and is scheduled to run until March 31st 2026.
The scheme works by placing certain obligations on medium and large energy suppliers. These suppliers must promote measures that improve the ability of low-income, fuel-poor and vulnerable households to heat their homes.
These measures include offering access to a range of home improvements, such as loft insulation, cavity wall insulation, solid-wall insulation, double glazing, repairing boilers and installing green heating systems like heat pumps and biomass boilers.
Be aware, however, that applying for the ECO4 scheme is a multi-step process.
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