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Energy Price Cap Explained

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Energy prices have been a significant topic in the UK for several years. With electricity and gas rising to the highest levels for the average consumer in decades, it’s no surprise that families and businesses want more protection to ensure they aren’t paying an arm and a leg.

The ‘Energy Price Cap’ is useful for keeping costs down. Introduced by Ofgem, it limits the amount that any given household has to pay in a single day. But what exactly is Ofgem? What is the maximum amount that a family has to pay? And does the cap apply to businesses, too?

Keep reading our blog below for all the important answers you need.

What is the Energy Price Cap?

The Energy Price Cap, imposed by Ofgem, limits the amount that energy suppliers can charge consumers in the UK for each unit of energy. This cap aims to ensure that prices do not become unreasonable.

Between 1st April and 30th June 2024, the energy price cap is set at £1,690 per year for a typical household that uses electricity and gas and pays by Direct Debit. This is £238 lower than the cap set between 1st 1 January and 31st March 2024 (£1,928).

The price cap covers you if you pay for your electricity and gas by either: 

  • standard credit (payment made when you get your electricity and gas bill) 
  • Direct Debit 
  • prepayment meter 
  • Economy 7 (E7) meter

The energy price cap only applies to suppliers’ standard and default tariffs, which most households are on.

Each energy price cap lasts only three months before it is set again. Many experts anticipate that the cap will fall once more in July 2024, although this is yet to be confirmed.

An assessment carried out by Ofgem mainly determines the energy price cap. This considered both the prices that consumers are currently paying and the costs that suppliers face for providing energy.

Remember that even though the energy price cap is the same for everyone, it is rare for two households to pay the same figure. This is because each house uses different amounts of electricity and gas on a given day.

What is Ofgem?

Ofgem stands for the ‘Office of Gas and Electricity Markets’. This is the government regulator and independent National Regulatory Authority for energy in the United Kingdom.

As an independent regulator, Ofgem’s role is to protect consumers in the UK and ensure that energy prices do not become unreasonable. The main roles of the organisation are:

  • promote value for money 
  • promote security of supply and sustainability 
  • supervise and develop markets and competition 
  • implement regulation and deliver government schemes

Although you are unlikely to interact with Ofgem directly, the body is ‘behind the scenes’, monitoring prices and ensuring that everything is fair for consumers.

Ofgem will also record complaints, administer price caps, oversee social and environmental schemes, determine what appears on energy bills, provide a safety net after supplier failure, and publish guides and/or energy market information.

What is a Daily Standing Charge?

In the United Kingdom, you need to pay for having access to energy, even if you are not using it on a daily basis. This is known as a ‘Daily Standing Charge’ – in other words, a baseline payment that covers your ability to use energy, if you wish.

If you have access to both gas and electricity in your property, the average Direct Debit standing charge is £334 per year from 1st April 2024 onwards. This is higher than a few months ago, at £303 per year. The daily standing charge can differ, depending on where you live in the country. 

For example, the daily standing charge is less expensive in London and more costly in North Wales. According to Ofgem, this is because of the varying costs of transporting power to where you live.

Can energy companies charge more than the price cap?

For the standard and default energy tariffs, the answer is no: energy companies are not allowed to charge more than the price cap. The independent regulator, Ofgem, monitors things to ensure this is the case.

Why does the Energy Price Cap exist?

The energy price cap was first introduced by Ofgem in 2019. It exists to protect consumers by preventing energy suppliers from charging unreasonably high amounts to provide electricity and gas. 

The price cap is particularly useful for low-income members of society who may be unable to afford higher prices.

In recent years, some experts have argued that the daily standing charge is ‘unfair’ and should be removed or reduced. One argument is that it partly disincentivizes households (especially low-income families) from going an entire day without using energy because they are paying for the privilege of having access to it regardless.

Is there any support available for energy bills?

If you struggle to pay your energy bills, all is not necessarily lost. The Citizens Advice Bureau provides guidance on this area, including determining whether you are eligible for a grant.

Some of the options available for you to consider include:

  • Agree on a payment plan with your supplier
  • Pay off your debt through your benefits
  • Check if you can get a grant to pay off your energy bill

There may be other things you can do—for example, see if there are any ways to get extra help or money that you are not currently taking advantage of. If you are sick or disabled, not working, or a carer, you may be able to claim benefits.

You should also check your meter to ensure that you aren’t being overcharged for your energy usage and that the price is within the Energy Price Cap.

Does the energy price cap apply to businesses?

No, the energy price cap currently only applies to family households and does not apply to commercial businesses. A company’s energy usage can be significantly above that of any regular household, so an energy price cap would no longer be appropriate. 

Grants are often available to help organisations in specific situations, though. You should research these or speak to an energy expert.

Are businesses getting any support for energy bills?

Yes, support schemes are in place to make it easier for businesses to pay their energy bills. A lot of this information can be found on the Ofgem website.

For example, Ofgem has launched a scheme for microbusinesses—companies that employ less than ten people and use no more than 100,000 kWh of electricity or 293,000 kWh of gas per year.

New support schemes are introduced regularly, with different ones phasing in and out, so you should research the options available at the time of reading. You may also use the Broker Alternative Dispute Resolution (ADR) scheme and find a suitable expert to support your costs.

How SOLD can help

Managing UK energy costs becomes more manageable with a grasp of the Energy Price Cap and Ofgem’s protective measures. For those facing financial pressures due to rising energy bills, cash house buyers offer a swift property sale solution, providing a way to realign finances. Staying informed and exploring all available support is key to navigating these challenging times efficiently.

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