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What does the energy price cap rise mean for you?

Disclaimer: The information on this page was correct as of August 17, 2021.

15 million households in Britain are set to see their energy prices as Ofgem announces an energy price cap increase.

The energy price cap protects millions of customers who are on default or standard variable tariffs, setting a limit on how much providers can charge. Standard variable tariffs tend to be the most expensive a provider has to offer, so the Ofgem price cap makes sure that everyone is paying a fair price for their gas and electricity and can save households up to £100 per year.

However, Ofgem has recently announced that the price cap will increase in April 2021. Based on the typical customer using 2,900kWh of electricity and 12,000kWh of gas, the cap will increase by £96 for customers on a standard variable tariff (bringing the cap to £1,138 per year) and £87 for prepayment customers (bringing the cap to £1,156). This means that, from April, the cap will be at a similar level as before the pandemic.

Why does the price cap change?

The main factor in price cap changes is the wholesale price of energy. Ofgem makes sure that energy prices benefit both customers and providers. The cap ensures that customers aren’t paying too much for their energy, but providers are making enough money to cover their costs.

See where the cap is changing this year on the right. The numbers may not add up exactly due to prices being rounded up/down to whole pounds.

The April increase includes an additional allowance to allow suppliers to start to recover some of their COVID-19 related costs such as increased debts where people have faced financial difficulty due to the pandemic.

What does the energy price cap increase mean for you?

If you’re on a fixed tariff, this won’t affect you. This is because your prices per kWh won’t change throughout your contract. If you’re on a fixed tariff, you’re likely on top of your energy bills and switch providers and/or tariffs regularly when your contract runs out.

If you’re one of the 11 million households on a standard variable or default tariff (maybe your contract has run out and you’ve not changed provider or tariff) or have a prepayment meter, this increase could see your bills significantly increasing in line with the cap. Even though the cap sets the maximum a provider can charge for your energy, it’s likely that some customers could end up paying the highest rates possible as the companies try to maximise their profits.

While this may not seem fair, this is exactly how variable tariffs work. Prices can change regularly; increasing and decreasing in line with the cap or when wholesale energy prices change. Ofgem’s price cap is reviewed twice a year to keep customers protected from unnecessary and unfair increases to their energy bills.

What does Ofgem say?

CEO, Jonathan Brearley said: “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.”

“As the UK still faces challenges around COVID-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly, and ensure that any household in financial distress is given access to the support they need.”

How to avoid the energy price cap increase

The best way to save money when the energy price cap changes is to switch provider or tariff regularly and keep an eye on your contract end dates.

Jonathan Brearley says:

“The price cap ensures a safety net against poor pricing practices, saving customers up to £100 per year, but if they want to avoid the increase in April, they should shop around for a cheaper deal.”

If you switch to a different or fixed contract before the 1st April 2021, whether it’s through a new provider or just a new tariff, you’ll be able to avoid the price cap and most likely save a lot more money.

It’s important to remember that the switching process normally takes around 3 weeks to complete, so to avoid the increase completely, you’ll have to start the process before 10th March 2021.

How much could you save?

If you want to switch to avoid the energy price cap increase, you could easily save hundreds on your energy bills. We’ve rounded up some of the Standard Variable Tariffs and compared their prices with other tariffs and providers to show you how much you could be saving.

Current provider Standard Variable Tariff New provider Fixed Tariff Savings per year
British Gas £98.83 OVO Energy £86 £153.96
EON £100.07 Shell Energy £93 £84.84
Scottish Power £99.50 Octopus Energy £90.50 £108
Bulb £96.31 Together Energy £87.08 £110.76

*Prices correct as of 19/2/2021 based on a London postcode using 12,500kWh gas and 3,100kWh electricity per year, paid by direct debit.

This page was written by...

Polly Tyler

I've loved writing since I was a child and have worked on a number of different projects since I left school, including journalism, copywriting, and marketing. Utilty Switchboard has given me the opportunity to grow my knowledge and experience and I've loved every minute!

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