I often mention the Energy Price Cap in passing when talking about energy prices but there’s a lot of confusion around how it actually works.
There’s the fact that while a headline figure is given, this is not actually what you pay – you could end up paying more or less depending on usage.
The figure is also annualised even though it changes every quarter.
Then there’s the fact that there are different rates depending on the type of tariff you’re on, where you live and how you pay your bill.
Given the Energy Price Cap is changing again today (1 October) – falling to £1,923 a year on average – and will stay in place until the next quarter, now seems as good a time as any to dig into the ins and outs of it.
What is the Energy Price Cap?
The Energy Price Cap is a cap on the maximum amount of money that an energy supplier can charge for a single unit of energy on standard variable tariffs.
The figure is set by industry regulator Ofgem, which uses a combination of factors such as underlying energy costs as well as inflation to decide the amount.
The intention is that the rate is a fair one – it allows energy suppliers to still make a profit while ensuring consumers are not being ripped off.
The cap is reviewed and updated regularly to ensure it remains current.
Each cap covers three months – from the 1st of January, April, July, and October – and is announced a couple of months before the new quarter begins.
What is the current Energy Price Cap?
Usually when the Energy Price Cap is reported in the media, an annualised headline figure is given.
From 1 October to 31 December, 2023, this figure is £1,923.
This number is based on the assumed annual energy consumption of a typical household in Britain – a two to three bedroom house with two to three occupants – which Ofgem estimates to be 2,900 kWh for electricity and 12,000 kWh for gas.
It’s also assumed that you’re on a standard variable tariff, rather than a fixed tariff, and you’re paying by direct debit.
Ofgem also publishes the exact unit prices.
From 1 October to 31 December, 2023, energy suppliers can charge 27.35p per kWh for electricity with a daily standing charge of 53.37p. And for gas, they can charge 6.89p per kWh for usage and a daily standing charge of 29.62p.
Again, these numbers are based on a standard variable tariff, rather than a fixed tariff, with payment by direct debit.
What you should know about the Energy Price Cap
The headline figure for the Energy Price Cap is actually pretty meaningless.
Although it gives you an idea of whether to expect a higher or lower bill next quarter, the reality is that few people would be paying exactly a quarter of £1,923, or even a figure close to it.
This is because the Energy Price Cap varies depending on where you live, what type of meter you have and how you pay for your energy.
And to find these exact figures, you’ll need to dig deep into Ofgem’s Energy Price Cap announcement.
Here’s an example of the Energy Price Cap announcement for October onwards, which does little to break the figures down until you start opening all the appendices.
Essentially, those who have pre-payment meters will pay slightly less per unit of energy but slightly more for their daily standing charge.
And then there’s the fact that there’s a lot of regional variation when it comes to prices.
North Wales and Mersey for example can expect an electricity bill of £1,360.53 per year based on an annual usage of 3,100kWh and payment by direct debit.
In contrast, nearby East Midlands are paying £1,229.51 per year based on the same level of energy consumption.
That’s a difference of £131.02.
Don’t forget, what you pay will depend on how much energy you use as well.
Things affecting your energy consumption
Plenty of factors will influence how much energy you actually use, including lifestyle factors.
In my case, during spring and autumn I’m typically travelling for work, which means less energy usage at home.
In winter, my energy usage isn’t as high as my energy supplier expects it to be because I live in a relatively new flat with great insulation. That and the fact that I’m a great believer in a good jumper.
Conversely, in summer I use more electricity because my flat gets too hot and I’ll need a fan to cool it down. I’m usually not travelling for work so will be at home more.
The best thing to do if you’re on a budget? Check your latest energy bill and any notices sent by your energy supplier.
It should give you a breakdown of what you’re actually paying per unit of energy and a summary of how much energy you use.