What is the energy price cap?

The government’s price cap on standard rate energy bills came into effect in January 2019 and new increased levels have recently been announced by Ofgem and will come into effect on 1 April 2019.

The price cap means that that price that individuals pay for energy is capped if they are on a Standard Variable energy tariff they have not opted for, this is known as a Default Tariff. These are the basic packages that energy companies offer and usually apply if individuals have not searched for alternative deals.

The cap works by limiting the price a supplier can charge per kWh of electricity and gas used. It was initially set at at £1,137 a year for dual-fuel customers using an average amount of gas and electricity and pays via direct debit.

Since the cap was introduced, Ofgem have updated the cap to take effect from April, and will reevaluate it again in October to ensure that it reflects the latest estimated cost of supplying energy. The caps will also be reevaluated every year in these months.

The introduction of the cap should put an end to suppliers exploiting loyal customers with Ofgem estimating that the cap will help save 11 million people an average of £76 a year.

However, consumer organisations argue that consumers could save more money by researching and switching suppliers. Chief executive of Citizens Advice said “while people on default tariffs should now be paying a fairer price for their energy, they will still be better off if they shop around”.

One comparison company said that on average, customers who switched paid £921 a year on a dual-fuel fixed tariff – £216 less than the cap level. Find out how much you can save by visiting our switching page.

Consumers are being encouraged to take steps to improve the energy efficiency of their homes by installing better insulation or heating controls amongst other options in order to make longer-term savings that purely relying on the energy price cap.

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