Ben Brading 11 min read

The ultimate guide to the energy price cap

The energy price cap was once just another obscure Ofgem regulation, barely mentioned in the news. However, since the onset of the energy crisis, it has become a crucial factor in determining the cost of domestic energy bills across the country.

This guide delves into everything you need to know about the energy price cap.

Use our Energy Price Cap finder to discover the exact electricity and gas price cap rates applicable to your region and payment type.

What is the energy price cap?

The energy price cap restricts how much suppliers can charge for electricity and gas under a standard variable tariff. During the energy crisis, it was instrumental in determining the cheapest tariffs available on the market.

With lower fixed energy tariffs being offered, the price cap serves as a maximum price limit for energy suppliers.

The current price cap is £1,690 for the average UK home until 30 June 2024.

Why is the energy price cap so expensive?

The energy price cap is rising to reflect the actual cost of supplying electricity and gas to homes.

Here’s our brief outline of the events that have caused the price of energy to skyrocket in Britain:

Since the early 1990s, the natural gas output of the North Sea has declined, making Britain dependent on importing gas from Europe.
In 2017 the UK government decided to remove most of Britain’s gas storage capacity.
On 24 February 2022, Russia invaded Ukraine.
In support of Ukraine, The UK, Europe, and the US implemented a series of economic sanctions against Russia.
Responding to the economic sanctions, Russia has gradually reduced the volumes of gas it sells to Europe.
In the absence of Russian Gas and a lack of alternative supplies, the price of natural gas has soared.
The UK continues to generate approximately 40% of its electricity by burning natural gas, causing the price of electricity to skyrocket.

What is the current energy price cap?

On 23 February 2024, Ofgem announced that the energy price cap from 1 April 2024 to 30 June 2024 would be set at £1,690 annually for customers on a default tariff.

The typical energy unit prices during this period are as follows:

Electricity: 24.5p per kWh with a daily standing charge of 60p.

Gas: 6p per kWh with a daily standing charge of 31p.

Source: Ofgem

Note that the exact price cap rates depend on your home’s (1) location and (2) payment method. Enter these into our finder below to find the exact price cap rates that apply to you

Energy Price Cap Finder (1 April to 30 June 2024)

History of the consumer price cap

Teresa May’s Conservative Government enacted the consumer price cap in early 2018. The Domestic Gas and Electric (Tariff Cap) bill was adopted by parliament, requiring that Ofgem impose a maximum price on poor-value energy tariffs.

The government’s analysis found that approximately 11 million households across Britain were paying over £300 more each year compared to the cheapest tariffs available.

The overcharging of consumers occurs when customers stay with the same energy supplier for many years and are paying the uncompetitive standard variable energy tariff. The bill imposes a maximum price that can be charged under the standard variable tariff.

The bill was expected to reduce overcharging by energy suppliers by £1.4 billion each year.

How is the energy price cap calculated?

The price cap tariff bill requires that Ofgem apply the cap at a rate that will continue to enable suppliers to compete effectively and encourage customers to compare energy suppliers and switch to the most competitive tariffs.

The energy price cap is calculated to be the underlying cost to supply electricity or gas plus an allowance for the profit of the energy suppliers.

Here’s a breakdown of the separate costs incurred by energy suppliers included within the price cap:

Wholesale energy – The price the supplier pays for the electricity and gas based upon forward rates available on the market. Check out our guide to the latest wholesale energy prices.
Network costs – The cost of moving energy through the national grid, local electricity distribution network and local gas distribution networks to deliver to individual household customers.
Policy costs – The cost of the government’s social and environmental policies, including the emissions trading scheme.
Operating costs – The cost of being an energy supplier, including providing energy meters, a customer services department and producing energy bills.
Payment collection costs – The cost of collecting money from customers. The allowance is slightly different depending on whether you pay by direct debit, BACS or prepayment.
VAT – An additional 5% consumer tax levied on all household bills.

Exemptions from the energy price cap

Renewable energy tariffs

Renewable energy tariffs are exempt from the energy price cap. Ofgem recognises that renewable energy tariffs that use entirely renewable energy generation inevitably incur more costs than fossil fuel-based energy supply.

Ofgem grants the green exemption on a supplier-by-supplier basis and only when they are satisfied that the tariff encourages renewable energy production.

The effect of the price cap on comparing energy suppliers

During the energy crisis of 2022, comparing energy suppliers became impossible.

If you visited an energy comparison site, you were greeted with a message recommending that you do not switch energy suppliers.

So what happened?

The typical situation in the energy market is that fixed-rate deals are cheaper than variable tariffs.

Energy suppliers use fixed-tariff offers to attract new customers, and people can save hundreds of pounds by comparing and switching to the most competitive fixed tariffs in the market.

During the energy crisis, due to volatility in wholesale energy prices, suppliers could not offer any savings on fixed tariffs and so comparing suppliers was not possible.

For more information, check out our guide on whether you should fix energy prices until 2024.

💡Find out how much you can save with a fixed energy tariff today using our energy comparison tool.

How often is the energy price cap updated?

On the 4th of August 2022, Ofgem announced that the energy price cap would be updated quarterly rather than bi-annually.

The decision to change the energy price cap more regularly was made to reflect increased volatility in energy prices. The energy price cap needs to reflect the actual costs incurred by suppliers, or it will cause more energy supplier bankruptcies.

The quarterly updates occur on 1 April, 1 July, 1 October and 1 January, with the pricing methodology announced approximately a month in advance. The quarterly updates are designed so that customers are paying the real cost of energy.

Who is protected by the energy price cap?

The energy price cap applies to domestic standard variable (default) tariffs.

The energy price cap applies to all payment arrangements:

Standard credit (you pay manually when you receive a bill)
Direct Debit (payment is collected automatically)
Prepayment meter (you pay in advance)

The energy price cap applies to variable tariffs on single-rate energy meters and dual-rate economy 7 meters.

Criticisms of the energy price cap

The price cap legislation was designed to stop suppliers from charging too much on those households on a standard variable tariff.

Today, the energy price cap is not serving this function; instead, it is artificially holding energy bills below the real cost of energy. It’s also removing the incentive for households to compare and switch energy suppliers, meaning that the deregulated energy market is not functioning as designed.

Government support packages

The actual price of delivering electricity and gas to homes has approximately doubled between 2020 and now. Here’s our in-depth analysis explaining why electricity is so expensive?

We’ve also produced a helpful guide to the support available to households struggling to pay energy bills.

Does the price cap apply to businesses?

The energy price cap only applies to the household market for energy.

Companies are not protected by the business energy price cap, meaning that the prices paid under deemed contracts are much more expensive than those for households.

In these times of rising energy prices, it’s essential that businesses shop around for the best available deals.

Let AquaSwitch help you compare the market today with our:

Business energy comparison service
Business gas comparison service
Business electricity comparison service