Everything you need to know about energy price caps – Forbes Advisor UK

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October 1, 2021 marks the start of a new energy price cap. But what exactly is the price cap, who sets it (and when) and – most importantly – how can it affect your energy bills? We have the answers to these questions and more

What is the energy price cap?

This is the maximum amount that energy suppliers are allowed to charge per kWh of gas and electricity (called “unit tariff”) per year. It also incorporates a maximum daily standing charge that matches the cost of powering your home with electricity.

The price cap only applies to domestic energy customers paying standard Variable Rate Energy (SVT) tariffs – also known as “default” tariffs. So those who have a fixed energy tariff are not affected.

The figure shown for the SVT price cap – £ 1,277 from 1 October – is calculated for the average energy consumption of a household. Households using less or more energy will see their bills capped at different amounts because the cap applies to the price of each unit used.

And it’s important to remember that the cap doesn’t limit how much you’ll pay. You pay a capped price for each unit, so how much you consume will determine your bill amount.

Who sets the ceiling and when?

The energy price cap is reviewed and set by the market regulator Ofgem twice a year. It is announced in February and August and takes effect on October 1 and April 1, respectively. It was first introduced in 2019, with a cap already in place for customers on refund meters (more details below).

How does this affect my invoices?

Naturally, when each new price cap is announced, most energy providers adjust the cost of their SVTs to the same or a level similar to the cap.

How much does the cap cost?

From October 1, the energy price cap is set at £ 1,277 per year, an increase of £ 139 from the April cap. The new prepayment meter price cap is £ 1,309, £ 153 more than in April.

Keep in mind that these numbers are based on maximum unit price energy billed to an SVT household consuming a average amount of energy. This is not the maximum amount that each household will pay. If you burn more than the average number of units, your annual energy bills will be higher than that number.

Note that the price cap may vary depending on where you live. This is due to the varying costs of transporting energy through the energy grid to the region in which you live.

How to avoid paying the ceiling?

Traditionally, you could avoid paying the cap by making sure you always have a fixed rate energy tariff. It’s easy to compare energy prices on a comparison website and switching providers is quick and hassle-free.

However, as the October price cap arrives, we find ourselves in the midst of an energy crisis. This means that it is currently practically impossible to obtain a fixed rate energy tariff cheaper than the cap.

Why can’t I find a cheap flat rate energy tariff?

Since the start of this year, wholesale energy prices have climbed more than 250%, leading to the closure of many small energy companies. And those who remain have withdrawn all of their cheaper fixed energy tariffs, or are offering them at costs well above the cap price.

What should I do about my energy bills?

This means that, exceptionally, it currently makes sense to stick with your SVT – whether you pay it now or are about to stumble upon it when your existing fixed rate ends.

Ofgem said he will continue to honor the price cap so you know £ 1,277 is the maximum you will pay, until at least the price cap is revised again next year. This means that the current cap acts like a six month fixed rate deal.

What kind of savings could I have made?

As recent events have shaken energy savings – and the cheapest deals are now variable rates – our tool shows the annual savings you could have made on your energy bills by paying the lowest fixed rate. expensive from the market, compared to the price payment. cap at the time.

Ofgem SVT default price cap

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Price cap announcements

As there are no fixed rate energy tariffs available that are cheaper than the current price cap of £ 1,277, we have entered question marks in the number display when you move the cursor over October 2021.

We’ll keep you posted when things change and the market sees a return to cheaper fixed energy prices.

How has the energy price cap changed?

Energy price caps have fallen and increased since 2019. Here is a timeline of their development:

  • From January 1 to March 31, 2019. The first level cap was set at £ 1,137 for a typical customer at the Default / SVT tariff – a dual fuel single rate customer paying by direct debit using a typical amount of energy. An existing prepaid meter cap remained at £ 1,136 for a dual fuel single tariff customer using a typical amount of energy
  • From April 1 to September 31, 2019 the default rate cap increased from £ 117 to £ 1,254 per year and the prepayment meter cap from £ 106 to £ 1,242 per year
  • October 1, 2019 – March 31, 2020 the default price cap level has fallen to £ 1,179 and the prepayment meter cap to £ 1,217
  • April 1, 2020 – September 31, 2020 the default rate cap level has dropped further to £ 1,162 and the prepayment meter cap has also been lowered to £ 1,200
  • October 1, 2020 – March 31, 2021 the default price cap fell to £ 1,042 and the prepayment meter cap fell to £ 1,070
  • April 1, 2021 – September 30, 2021 the default price cap has been increased to £ 1,138 while the prepayment meter cap has been increased to £ 1,156.
  • October 1, 2021 – March 31, 2022 the default price cap will increase from £ 139 to £ 1,277 while the prepayment meter price cap will increase from £ 153 to £ 1,309.

What is happening in the UK energy market?

There are currently no energy offers that are priced below standard rates, so we have temporarily suspended our switching service.

Is there a cap for prepayment meters?

Yes, there is a separate cap for those who benefit from prepayment tariffs (around four million households) or those who pay for their energy in advance on a pay-as-you-go basis.

The cap was introduced in April 2017 and, like the default price cap, this means that suppliers cannot set their prices for units of energy above a certain level.

The prepayment ceiling is also reviewed every six months, in April and October. As noted above, it will drop to £ 1,309 on October 1, 2021.

Ofgem incorporated the prepayment meter cap into the default tariff cap last year so that it can be extended beyond the end of 2020. TThe government also extended the general price cap throughout 2021.

Currently, the cap should be lifted anyway in 2023.


Is price caps a good thing?

In “normal” times, the purpose of price caps is to ensure that customers with a low-value prepayment or default energy tariff pay a fairer price for their energy and are protected from the loss of energy. overcharging.

If wholesale costs go down, the price cap will also go down and energy bills could go down. But if costs go up, the cap ensures consumers won’t be hit by sky-high prices.

While this sounds good in theory, when normality returns you can usually save a lot more than the price cap will save you by. shop and change at a more competitive price. Those 10 energy companies impressed us the most in a number of critical areas, including their pricing offering.

Also, keep in mind that price caps won’t limit your total energy bill, so if you start using more energy each month, your bill will increase further.

If you have a prepayment meter, you can also benefit from going to the credit meter and paying your bills by direct debit.

The ability to switch will depend on your credit rating, but if possible you will need to have a new meter installed and then you can downgrade to a cheaper rate.

Also, keep in mind that price caps won’t limit your total energy bill, so if you start using more energy each month, your bill will increase further.

If you have a prepayment meter, you can also benefit from going to the credit meter and paying your bills by direct debit. The ability to switch will depend on your credit rating, but if possible you will need to have a new meter installed and then you can downgrade to a cheaper rate.

* Source: Comparison Technologies

What is happening in the UK energy market?

There are currently no energy offers that are priced below standard rates, so we have temporarily suspended our switching service.

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