The energy price cap that came into effect at midnight on 1 January 2019 limits the amount energy companies can charge for default tariffs to £1137 per year for a typical dual fuel customer paying by direct debit.
The cap is being imposed by Ofgem on energy companies following Parliament’s approval of the Government’s Domestic Gas and Electricity (Tariff Cap) Act. The cap is expected to cut the energy bills of 11 million customers on default tariffs by £76 a year on average and £120 for those on the most expensive energy tariffs. It’s expected to save Britons £1 billion a year collectively.
Dermot Nolan, chief executive of Ofgem, said: “From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity.”
The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.”
But how much will it save you personally? That will depend on how much energy you use, where you live, how you pay for your energy, and what tariff you’re currently on. We’ll take a closer look at these variables below:
How much energy you use
The cap is set at £1137 for dual fuel tariffs for average consumers of gas and electricity, based on a measure called Typical Domestic Consumption Values (TDCVs). It doesn’t mean that £1137 is the maximum energy companies can charge you. If you use more energy than the medium TDCV value—set at 12,000 kWh of gas and 3,100 kWh of electricity—you’ll pay more than £1137.
To get technical, the cap actually sets a limit on the amount energy suppliers can charge per unit (kilowatt hour) of gas and electricity, with added costs for standing charges. The following limits apply
- per unit charge for kWh for electricity-only customers paying by direct debit: 17p
- per unit charge for kWh for gas-only customers paying by direct debit: 4p
- annual standing charges for electricity-only customers: £83
- annual standing charges for gas-only customers: £94
- annual standing charges for dual fuel customers: £177
Where you live
Additionally, the cap is set at different levels depending on the region of the country in which you reside.
|Price cap (for average consumption on dual fuel)
|North Wales and Mersey
How you pay
The cap of £1,137 is for customers who pay with direct debit. Energy companies can charge customers who haven’t set up direct debits £83 more per year, to reflect the higher costs of billing those customers.
Your current tariff
If you’re already on a fixed rate or discount tariff, the cap won’t affect the amount you pay. It will only lower bills for the 11 million Britons currently on poor value standard default tariffs. The amount you will save will depend on how much you’re currently being charged by your energy company.
Ofgem has compiled data about the savings customers of the largest energy suppliers will find earn through the cap, finding that those on tariffs from Big Six supplier Scottish Power will save the most.
|Direct Debit Single-Rate Default Tariff
|Difference between Cap
|Standard Credit Single-Rate
|Difference between Cap
Compare to save
The energy cap will ultimately save a many customers on their energy bills, but many could save even more by comparing energy tariffs and finding the cheapest on the market. The energy cap limits the amount energy companies can charge for default tariffs. There are significant savings to be found with fixed energy tariffs. Customers can find fixed dual fuel tariffs from around £853 to £865 as of the autumn 2018, savings of £284 to £272 a year over a price capped default tariff.
Ofgem has encouraged customers to continue to compare energy and shop around for the best energy tariff even while the cap remains in place.
“Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible,” said Nolan, chief executive of Ofgem.