The energy price cap is a system used to limit the amount that an energy supplier can charge for their default gas and electricity tariffs. It is calculated by Ofgem and reviewed every six months – there’s a cap level for summer and a level for winter.
The price cap determines such things as the maximum price per kilowatt hour and the daily standing charge. It doesn’t limit the total value of your bill. The rates also vary by region and payment method, which Ofgem says reflect the costs of delivery.
It’s generally based on wholesale energy prices during the previous six months. It has featured in the news a lot because wholesale energy prices have reached a record high recently. The next summer energy price cap will be announced on 7th February 2022 and come into effect on 1st April 2022. Some analysts predict that it may rise by as much as 50%, having a big impact on household budgets.
The default tariff
You’re likely to be on a default tariff (and therefore subject to the energy price cap) if you have been moved to a new energy supplier because your previous supplier went out of business. The current rate, capped by Ofgem, may be better than the alternative tariffs offered at the moment because of the recent high wholesale energy prices. However, that may change when the new cap is introduced in April.
The energy price cap is designed to help people who don’t shop around and switch their energy supplier very often, if at all. This means that they are likely to end up on the supplier’s default energy tariff and pay more than they should. You could also be on the default tariff if your fixed term deal has expired.
A tariff to which the price cap is applied may not necessarily be the cheapest. You may be able to get a fixed-price deal over a period of time, which has worked out much cheaper. However, due to the recent volatility in wholesale energy prices as well as uncertainty in the market, it is difficult to judge how much you could save, if anything, by switching to a new fixed term deal now. You’ll find more information and some specific calculations on the Money Saving Expert website.