Energy Price Caps Explained

Most people are aware of the energy price caps which came into force in 2019, but not many people have a good understanding of what they are and how they work. We’ve put together this comprehensive guide to answer all your burning questions.

 

What are energy price caps?

The aim of energy price caps is to ensure consumers pay a fair price for the energy they use. Specifically, they set a maximum price that energy suppliers can charge per unit of energy. It’s important to note that the cap isn’t on your energy bills, which will differ depending on the amount of energy you use. It’s actually a rate cap, meaning that the price per unit must stay below a set amount to prevent energy companies overcharging customers. The price cap cannot limit your overall bill – this will depend on how much energy you use.

 

What are the levels of the price caps?

In early 2019, a new price cap was rolled out by the energy regulator, Ofgem. For people on default tariffs, as of 1st January 2019 the cost of electricity is capped at 17p per kWh and gas is capped at 4p per kWh. In April 2019, the cap is set to rise by 10% due to increased wholesale costs for the energy suppliers.

 

Why were price caps introduced?

The government introduced a price cap on energy to make sure that people who prepay for their energy or who are on poor-value ‘default’ tariffs pay a reasonable price for their energy. It is intended to protect consumers from being overcharged. If energy suppliers’ costs become cheaper, the cap is designed to ensure these savings are filtered through to consumers. On the other hand, if suppliers’ costs increase then the price cap ensures that any price hikes felt by consumers are justified and within a reasonable limit.

 

How do I know what the changes mean for me?

Every energy supplier must comply with the price cap, you don’t need to do anything for it to apply to you. If you are on a poor value tariff, such as a ‘standard variable’ tariff (SVT) or default tariff, your bills will automatically be decreased in line with the cap. You can contact your energy supplier to find out more information specific to your tariff. Your energy supplier must also always contact you in the event that your tariff changes in a way which could potentially disadvantage you, or if they are ending your tariff.

 

In these situations, they will need to explain:

  • What the changes are
  • Why the changes are occurring
  • What your rights are in the situation
  • When the changes will apply
  • Any potential outcomes if you do not take any action

 

Are the price caps permanent?

The energy price cap is reviewed regularly and will be adjusted in April and October. In 2020, Ofgem will review how the price cap has affected the energy market and the government will decide whether or not to continue using price caps for another year. Ofgem has estimated that the ‘prepayment’ price cap will last until 2020, with the default tariff cap likely running until 2023.

 

The regulator has stated that by then it expects other measures such as a more efficient switching service, smart meters, and industry advancements to contribute to better deals, thus removing the need for any price caps.

 

How can I check my energy supplier is charging me correctly?

While Ofgem publishes the level of the current price caps for different types of tariffs on its website, your energy supplier will be able to give you details specific to your tariff. Your tariff cap will depend on several factors including where you live, the type of meter you have, and how you pay. It’s worth noting that paying by direct debit will usually save you more money.

Will the price caps still apply if I move house?

When you move house, the property’s energy supplier will usually use a ‘deemed contract’ from the day you take ownership of the property. This is to make sure that the property will continue to receive power even though the occupancy is in flux. A deemed contract will usually be either a ‘standard variable’ tariff (SVT) or a default tariff – neither of which tend to be good value. However, if this is the case, you will continue to be protected by the energy price cap. Alternatively, if the property is currently using a prepayment meter you will be protected by the prepayment meter price cap.

 

You should contact the property’s energy supplier on the first day of ownership to find out the details of the current tariff, and make sure that you’re getting the best deal. Even though the price caps limit the charges from SVTs/default tariffs, it’s likely that there are other tariffs available which will save you more money.

What else can I do to reduce my energy bills?

While the energy price cap is a good measure and is designed to help consumers not to be ripped off, it’s important to make sure you are on the best energy tariff for you. Default tariff are rarely a good deal so if you haven’t checked yours in a while then make sure to shop around. Robin Hood Energy has a wide range of well priced tariffs, so there’s something for everyone.

Switching energy supplier is a very easy process and takes a matter of minutes. Comparison websites give a good overview of the tariffs available that meet your needs. All you’ll need to know is your postcode, your current energy supplier, and your current energy tariff. You can also use Robin Hood Energy’s switching tool to get a quote and find out how much you could be saving on your energy bills.