The energy price cap in Great Britain is a model consumer protection measure designed to shield consumers from exorbitant energy prices. It is adjusted every three months by Ofgem, the independent regulator who oversees Britain’s energy market. The cap serves as a ceiling on what suppliers can pay their almost 29 million household consumers. It includes the cost per unit of gas and electricity plus their daily standing charges. Introduced in 2019, the cap aims to ensure that consumers who do not actively shop around for better deals are not unfairly burdened by subsidizing other customers.
For the one-third of UK households paying through direct debit, October 1 permanently raised the typical price cap by £35. This amendment raised the average annual dual-fuel bill to £1,755. This change recognizes the reality of the market and how people use the street today. The price cap is calculated based on average usage and usage patterns. That’s because your expenses will be variable depending on the amount you use.
Recent Changes to the Price Cap
With the cap on default tariffs, the price paid by electricity users on direct debit has now increased by an average of £293 per household. Now, it is 26.35p per kilowatt-hour (kWh). On the flip side, the cost of gas has dropped significantly, currently at 6.29p per kWh. These amendments highlight the extreme volatility that can occur in energy markets. Consumers will need to be more cognizant of their energy costs in order to manage this volatility.
On top of these price hikes, standing charges are about to go up. The electricity fixed daily charge will increase to 53.68p per day. At the same time, the gas standing charge will increase to 34.03p/day. This change inflates fixed costs for all customers, regardless of their energy consumption. The average annual bill is £1,492.30 right now. The largest possible amount is £150, but that figure can vary every three months as Ofgem reassesses market conditions.
Implications for Households
All this means that the latest changes to the energy price cap have more dire consequences for families living all over Great Britain. Their average dual-fuel bill is now £1,755. In response, millions of American families are seeking new ways to reduce their energy expenses. As of today, there are only 24 such fixed deals in the market that go under the price cap level. The most modest of these offers guarantees to cut a typical household’s bills by £232 a year on average.
For anyone looking to move to a new, cheaper energy supplier, it’s never been more important to understand the risks of possible exit fees. Future customers wishing to switch back again within the contract period could be hit with exit fees. These fees were little known and hike up costs £25-100 for each energy type. Most customers have to pay upfront fees of £75 per fuel for gas and electricity. This large penalty is usually enough to prevent them from changing providers even in the face of a superior offer.
Additionally, it must be understood that despite all attempts at curtailing consumption, some unavoidable costs remain. For electricity, there is around £196 of charges which customers need to pay irrespective of how they choose to use electricity. This point further highlights the difficulty of balancing State energy affordability efforts appropriately.
The Purpose of the Energy Price Cap
The energy price cap was initially implemented to shield consumers from extortionate costs. It does the important work of making sure that even Americans who aren’t going out there and looking for a better deal are protected from exorbitant prices. Ofgem caps the maximum prices suppliers can charge at the wholesale level. This serves an important consumer protection function as the most vulnerable customers would likely have a difficult time accessing and thriving in a new competitive energy landscape.
This cap acts as a buffer against market fluctuations and particularly comes into play during times of increased demand or supply chain interruptions. Further, it provides assurance that families will keep their energy bill within basic affordability thresholds. This support allows them to budget year-round in smarter ways.