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What’s the Ofgem energy price cap?

Monday, 2 August 20215 minute read

The latest Ofgem energy price cap is set to be announced this week. But do you know what the cap is, and how it can affect your energy bills?

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The latest Ofgem energy price cap is set to be announced this week, and could affect up to 15 million households across the UK. But what exactly is it? And how might it affect you and your energy bill? In this blog, we explain how the price cap is calculated, why it’s there, and what it might mean for you.

What’s the energy price cap?

The price cap is the maximum amount any supplier can charge you for your energy, affecting default tariffs (often known as a standard variable tariff). The cap applies to both the standing charge and unit prices for gas and electricity. It doesn’t apply to other tariffs your energy supplier might offer, like fixed tariffs, so you might find yourself being charged more than the cap if you’re not on a default tariff.

The cap reflects any changes in the wholesale price of energy to keep prices fair for consumers — that means your bills can go up or down. It also reflects any other underlying costs or increases in inflation. It’s calculated by the Office of Gas and Electricity Markets (Ofgem), the government regulator for the electricity and gas markets in the UK.

Ofgem reviews the price cap every six months, announcing any increases or decreases in February and August each year. Any adjustments then come into effect in April and October — that’s when you’ll see any impact reflected on your bill if you’re on a default tariff and your energy supplier chooses to adjust their prices in light of the cap changing.

Why is there an energy price cap?

To protect consumers on default tariffs, which are often more expensive. The price cap keeps prices fair and in line with the wholesale market, so consumers can benefit from any savings when wholesale costs fall. It’s worth bearing in mind that, while fair, default tariffs may still be more expensive than others available.

At Pure Planet, we don’t make profit on the energy you use. Our Members’ rate is a pass through rate, based on wholesale costs, which means you pay what we pay for your energy. So we naturally keep the unit rate of our variable tariff below the price cap.

How can the energy price cap affect me?

The cap applies to anyone on a default energy tariff, commonly called a standard variable tariff. You might find yourself on this type of tariff if your fixed-term tariff has ended and you haven’t switched to a new one, or you might have chosen this tariff due to its flexibility.

There are around 15 million households on this type of tariff in the UK who can be affected by the price cap. Any adjustments to the price cap are announced a couple of months before coming into effect and your supplier will be in touch to let you know if you’re affected, so you’ll have time to shop around and see if you could get a better deal.

Remember, the price cap won’t limit your total bill, your energy usage will affect that too. And different factors, like your payment method, the type of meter you have and where you live, can all influence how much you pay.

It’s also worth noting that some standard variable green energy tariffs are exempt from the cap.

If you’re not sure what tariff you’re on, and if you might be affected by any adjustments to the price cap, it’s worth contacting your supplier to check.

Should I choose a fixed or variable tariff?

At Pure Planet, both our fixed and variable tariffs have their benefits. Here’s a breakdown of how they work, as well as their pros and cons:

Fixed tariff — best for peace of mind

If you choose our fixed tariff, the unit rate you pay for energy and your Membership fee (our standing charge) won’t change for the duration of your contract, regardless of any adjustment to the price cap or changes in the wholesale price of energy. That means you’re protected from any price rises, but you will have to pay an exit fee per fuel if you choose to switch away before your contract ends.

Variable tariff — best for flexibility

If you choose our variable tariff, the unit rate you pay for energy tracks wholesale prices. That means they can go up or down depending on what’s happening in the wholesale market. We’ll always let you know if we need to change your unit rate. Our variable tariff gives you total freedom to move onto a fixed tariff or switch to another supplier without incurring exit fees because you’re not locked into a fixed contract.

Whichever tariff you choose, you get 100% renewable electricity and 100% carbon offset gas as standard.

Find out more about our tariffs and get a quote here.

Alexandra
Digital Content Creator