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New lower Ofgem price cap announced

We’re going to explain the new energy price cap announcement and what this will mean for UK households and their energy bills.

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 27 February 2023

4 min read

New lower Ofgem price cap announced

People across the UK have been understandably worried about the cost of their energy bills for months now. Prices have increased in a lot of areas recently and energy prices have risen dramatically.

Ofgem have attempted to keep energy pricing fair for all by placing a limit or ‘cap’ on the amount energy suppliers can charge. This was £4,279 per year but this amount has now been dropped to £3,280 (from the 1st of April onwards).

You may not fully understand what the energy price cap is or how it works. Our aim is to explain this as well as the new changes that have been announced and how they could affect your energy bills moving forwards.

Who are Ofgem?

Ofgem stands for the Office of Gas and Electricity Markets. They are the department that controls and regulates the companies responsible for gas and electricity in the UK.

Ofgem:

  • Regularly check on the prices charged by energy suppliers, to try and keep them fair for all people across the UK.
  • Can set what is known as a ‘price cap’ meaning energy suppliers cannot charge more than a set amount for their base energy rate (e.g. how many pence you pay each hour for your electricity known as Kilowatt Hours or kWh).

What are the changes to the energy price cap?

Previously, the energy price cap was set at £4,279 at most per year for people paying by direct debit (£4,533 for those paying cash or by cheque and £4,358 for those on prepayment meters).

This amount has now been lowered to £3,280 per year, which will start from April 1st, 2023.

The important things to remember about the energy price cap are:

  • It is intended to stop UK residents paying too much for the default energy tariffs charged by energy companies
  • The energy price cap is a maximum price that consumers can be charged on a default energy tariff every year (the amount charged for each unit of energy) and this also applies to gas
  • You can still pay more than the capped amount, depending on how much electricity you use (the more energy used, the higher the cost)
  • It sets a limit for how much you can be charged as a ‘standing charge’ – the amount you are charged each day for having your house connected to the energy grid
  • The price cap amount gets updated every 3 months and can change based on things such as the wholesale costs of fuel, VAT (%) and maintenance costs for the suppliers.
  • If you are on a fixed-term deal with your energy supplier the cap wont apply to you, the cap applies to default tariffs (these will usually be where you’ve not recently switched suppliers)

At a first glance, it does seem like good news that the highest amount suppliers can charge for standard charges has been lowered.

But it is important to realise it is still possible for your energy bills to rise, so you may not actually be better off. Right now, the government has an Energy Price Guarantee in place as well as a £400 discount scheme (an Ofgem energy rebate).

This discount ends in April and the guarantee will change in April as well, leaving some households facing bills up to £900 higher per year than before.

Does the way I pay for my energy affect the price?

Yes, believe it or not you can end up paying more for your energy depending on how you choose to pay for it.

Below we have highlighted the energy price differences depending on your method of payment:

 Direct debitCash/ChequePrepayment meter
Cost per year (previous energy price cap January-March 2023)£4,279£4,533 (+£254 compared to direct debit)£4,358 (+£79 compared to direct debit)
Cost per year (new energy price cap April – June 2023)£3,280£3,482 (+£200 compared to direct debit)£3,325 (+£45 compared to direct debit)

The Energy Price Guarantee is a scheme developed by the UK government to combat rising energy prices. The guarantee limits the amount that energy companies can charge for energy to reduce UK household bills.

When does the Energy Price Guarantee end?

The limit set by the Energy Price Guarantee is set to increase as of April, allowing suppliers to charge more than they previously could. There have been calls to extend the previous limit for longer but whether this will happen remains to be seen.

Are my energy bills going to increase?

It is very possible that your energy bills might rise, even though the capped amount is now lower. Our main advice to keep your bills low would be:

  • Limit energy usage wherever possible (e.g. not using appliances unnecessarily)
  • Contact your supplier if you are worried you will be unable to afford your bills moving forwards (there may be support schemes in place that can help you)
  • Turn down your boiler temperature and turn off radiators in rooms you aren’t using
  • Avoid the tumble dryer and wash clothes at a lower temperature
  • Consider getting a smart meter (if you don’t already have one) as this can help you track your energy use over time

Resources

Citizen’s Advice – Your energy supply

Citizen’s Advice – Getting extra support from your energy supplier

Gov.uk – Energy Price Guarantee

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