The cost-of-living crisis has caused a lot of concern for people living in the UK, especially with the recent increase of the energy price cap. There is still some confusion about the cap and how it will affect households, so we go into more detail to explain everything you need to know.
What is an energy price cap?
An energy price cap is a price guarantee implemented by the government that places a limit on how much customers can be charged for their energy usage.
What is the current energy price cap?
The current energy price cap came into effect from October 1, 2022. It will remain in place for the next 24 months with the aim of ensuring households only pay an average of £2,500 per year for their electricity gas costs.
However, it is important to note that the energy price cap does not mean you will not pay more than £2,500 per year. The scheme implemented a fixed unit cost for gas and electricity, although final bill costs will depend on individual usage.
Customers on a dual-fuel standard variable tariff who pay by direct debit, standard credit or a prepayment meter will be charged a maximum average unit price of:
- 10.3p per kWh of gas (a rise of 3.3p)
- 34p per kWh of electricity (a rise of 6p)
Why are energy prices increasing?
Energy prices are increasing due to the conflict in Ukraine which has affected the supply of gas from Russia to Europe. The demand for energy has also significantly increase since the end of COVID restrictions, which has led to higher prices.
The wholesale cost of gas is more expensive, which means price increases are being passed onto customers by energy providers through an increased energy price cap.
How will this affect me?
If you are on a default energy tariff and pay by direct debit, standard credit or a prepayment meter then the energy price cap will be applied to your usage.
The energy price cap does not apply to anyone who is on a fixed-term energy tariff or who has a standard variable green energy tariff that has been exempted from the cap by Ofgem.
You will likely be on a price capped tariff if you switched to a new supplier after your previous supplier stopped trading.
What do I need to consider moving forward?
Bills
The new energy price cap came into effect on October 1, 2022, which means you will likely be paying more for your energy over the next 3 months compared to the same period last year.
Total bill amounts will be higher, and your energy supplier should have already contacted you to inform you of changes to your billing. If you have not heard from your supplier, get in contact with them as soon as possible to get an update on how the price changes will impact your costs.
Meter readings
In order to ensure that you are not overpaying on your energy bills, providers asked that you submit an updated meter reading before October 1, 2022. If you have not done so, take a reading of your gas and electricity meters and get in touch with your supplier to provide this information. If you do not provide a meter reading, your provider will have to estimate your energy usage, which can lead to higher bills. It is a good idea to submit a meter reading once a month to keep your account up to date.
Smart meter
You can install a smart meter in your home free of charge. All energy providers offer this service, and it could help you to save money in the long run. A smart meter gives you real-time information about how much energy is being used and because it communicates directly with your supplier you never have to worry about taking a meter reading.
What support is there for people struggling?
The government also announced that all electricity customers in the UK, including people living in park homes, will receive £400 credit over a six-month period, starting from October 2022. For people without a meter, this will be automatically added to your account. Those using a meter will have £400 added to their meter balance or have it paid in vouchers.
This is a non-payable scheme which means it will not be recouped through bills once the 6 month period has ended.
Off-grid households that use alternative fuels such as heating oil instead of gas will receive a one-off payment of £100.