What is it and how will it affect you in 2022?
Energy Price Cap
Designed to protect consumers, the energy price cap prevents millions of households from being faced with mammoth increases in the cost of gas and electricity. It aims to stop you from being treated unfairly if the market price of gas or electricity shifts unexpectedly by putting a cap on how high charges can go.
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Pre-payment meter caps
There are four million pre-payment customers in the UK. There is a separate price cap, sometimes called the safeguard tariff, to protect them in much the same way that the default tariff cap protects customers on standard variable tariffs.
If you’re on a pre-payment tariff, your bills would have been limited by a pre-payment price cap since it was introduced back in 2017. Ofgem enforces and reviews this cap, which is currently set at £1,200.
Why energy caps are needed
When it comes to energy, many households are loyal customers. Even though switching energy provider is one of the best ways to reduce energy bills, one third have never switched.
However, loyalty has not necessarily benefited the customer. Historically, rather than rewarding customer loyalty, some gas and electricity companies have actively done the opposite. For instance, by making the best deals available to new customers only and blocking their current customers from accessing them.
This is no longer permitted, following Ofgem’s Retail Market Review (RMR), and the observations made by Ofgem revealed that more needed to be done to improve the clarity and simplicity of energy deals and fair treatment for customers.
More than half of British households are on default energy tariffs that offer poor value for money and the energy cap has been introduced to prevent them from being mistreated and overcharged.
Who benefits from energy caps
The energy cap helps 11 million households in the UK. You automatically qualify for this support if you are on a standard variable or default tariff, or if you have a pre-payment tariff. It doesn’t apply to fixed-rate tariffs because these usually offer much better value and the nature of a fixed rate means these customers won’t experience unexpected price increases.
If you aren’t sure which tariff you are on, you should be able to find out the details by checking your energy bills or logging into your energy company’s online portal.
Looking back at your past bills, you may find that your charges fell in January 2019 when the cap was applied, but rose in April 2019 when the cap was adjusted. By April 2020, bills have fallen again. This is because there is a review to decide whether adjustments should be made to the energy cap every six months.
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How the caps are calculated
Price caps don’t automatically mean you won’t pay more than the amounts shown above. These are estimates for an average household with:
- a typical energy usage,
- on a dual fuel tariff,
- with payment by direct debit.
Although the energy cap isn’t a limit on your total bills, the figures outlined do give you an indication of the boundaries you’ll see reflected in your bills, impacting both the cost of your per-unit rate and your standing order.
The calculations are made by analysing data to find the average annual energy usage, using the Typical Domestic Consumption Values (TDCVs) set by Ofgem. The medium TDCV level is:
- 12,000 kWh of gas per year
- 3,100 kWh of electricity per year
Costs can also be affected by where you live and how you pay:
- There will be some variation depending on the region in which you live because of the cost of transporting energy.
- Customers who pay by direct debit usually get the best rates.