The energy price cap ensures you always pay a fair price for your gas and electricity. It stops you from paying more than you should. Here we explain how it works and applies, and how you can save even more by switching.
What is the energy price cap?
It’s a cap on the price you pay for energy if you are on a 'standard variable'open key term pop-up energy tariff or a tariff you haven’t chosen (a 'default tariff'open key term pop-up). You can be on a default deal whether you pay by direct debit, standard credit or use a prepayment meter.
The cap limits the price a supplier can charge you per kWh of electricity and gas (the unit measure which your bill is calculated from). This price is different from your total bill cost, which will go up or down depending on how many units of energy you use.
The UK government has given Ofgem, as the energy regulator, powers to set the level of the cap. We update it every six months to reflect the latest estimated costs to supply gas and electricity to you. Suppliers can't set their prices above the level we set. This ensures the price you pay is fair, and protects you from being overcharged.
The updates we make apply from 1 April and 1 October, for the following six months.
Are all energy tariffs price capped?
No. It doesn’t apply if:
- you are on a fixed-term energy tariffopen key term pop-up. These tariffs are more likely to be good value.
- you actively chose to sign up to a renewable energy tariff (standard variable) which Ofgem has exempted from the cap.
What is a 'default' or 'standard variable' tariff?
These tariffs are an energy supplier’s basic offer, and tend to apply if you haven’t shopped around for a better deal. They are typically poorer value and more expensive than a non-default, fixed-term contract deal, which you can choose to switch to. You will often need to renew fixed-term contracts after a year or more. If you have never switched, or not switched for a long time, you are likely to be on one of these tariffs. Over half of all households in Great Britain are on these tariffs because they have never switched or have not done so recently.
The most common type of default deal is a ‘standard variable’ tariff. A standard variable tariff has prices that can go up and down with the market. These tariffs don’t generally have an end date and won’t have a fixed-term period applying to any of the contract terms and conditions, such as your gas or electricity unit prices. You could be put on one if a fixed-term energy contract ends and you’ve not chosen a new one.
Do I have to apply to benefit?
No. Your supplier must automatically ensure its prices fall to the level or below the price cap we set.
If you have questions, you should first contact your supplier. They can tell you if your energy tariff is covered by a price cap. They must also write to tell you if your tariff is changed in a way that could disadvantage you, or if the tariff you are on is no longer available.
How do I know if I'm covered by the cap?
If you want to check, it’s best to contact your energy supplier. Suppliers must apply the cap we set. They must also write to tell you if:
- your tariff is changed in a way that could disadvantage you
- the tariff you are on is changing and will no longer be available.
Even if you are covered by the cap, you should still ask if you can be on a better deal or shop around to see if you can save more money by switching to a different supplier. Our switching guide can help.
How long will it last?
It’s due to end by 2023 at the latest, but it could end sooner. By then we expect other reforms, like faster switching times and smart meters, alongside other advances in the energy industry, to bring about easier and fairer access to better deals.
As the regulator, we monitor the market closely to make sure it’s competitive, and will report to the government. We update the cap twice a year to ensure prices are fair, and keep a close eye on your energy supplier and the energy market more generally to make sure you are getting a fair deal at all times. Based on our reports, it will be up to the government to consider if the market is working well enough for the cap to be removed.
How is the level set?
We set the level of the cap based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity services to a customer.
We update the level every six months, either reflecting changes in underlying costs, or increases in inflation. Our calculations cover:
- wholesale energy costs: how much a supplier has to pay to get the gas and electricity to supply households with energy
- network costs: the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country to your home. This causes the level of the cap to vary by region.
- policy costs: the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy
- operating costs: the costs incurred for suppliers to deliver billing and metering services, including smart metering
- payment method uplift allowance: the additional costs incurred through billing customers with different payment methods
- headroom allowance: this allows suppliers to manage uncertainty in their costs
- EBIT (Earnings Before Interest & Taxes): a fair rate of return on suppliers’ investments
- VAT: 5% tax added to the level of the tariff.
We calculate the bill values associated with the different tariff types using a ‘typical domestic consumer’ with medium energy use. Find out more at typical domestic consumption values.
Are there payment method differences in the level? (direct debit, standard credit or prepayment?)
Yes. Cost reflective charges are a reasonable way to allocate the costs to provide energy services to you.
Your payment method won’t stop you from being covered by the cap if you are on a default tariff.
Changing payment methods or shopping around for a different tariff or supplier could still help you reduce your energy charges. Learn more in our guide: Save money on gas and elec bills.
Are there regional differences in the level?
Yes. In general, suppliers set prices based on differences in network charges. This means that the price you pay reflects how much it costs to transport energy to the region you live in.
Cost reflective charges are a reasonable way to allocate the costs to run and maintain the energy network between customers. It encourages energy companies to be more efficient, for example by incentivising energy generators to set up nearer towns and cities to cut transportation costs. These efficiencies can then be passed on to customers through cheaper tariff offers.
What is the level now?
It's best to speak to your supplier to understand your specific charges on a capped tariff.
You can view the current price cap level for a typical energy customer on our page What are the energy price cap levels now? It includes a visual breakdown of the different cost factors that influence the tariff level each time we update it.
Why was it introduced?
The energy price cap was introduced to make sure that if you don’t shop around, or have fewer tariff choices because of your type of meter, you don’t pay an unfair price for your energy. This is while we introduce broader reforms, like faster switching times and smart meters, to make sure everyone gets a fair deal at all times.
It’s Ofgem’s role – as the energy regulator we’ve been given special duties by the UK government – to set the levels of the price cap. We do this twice a year. Our calculations reflect a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity services to you if you use a prepayment meter or are on a basic ‘default’ or ‘standard variable’ energy tariff.
Will my bills fall under the price cap?
If costs to supply your gas or electricity fall, then your bills should fall for the same level of consumption.
The cap makes sure suppliers pass on savings. Equally, if costs rise then you can have peace of mind that the cap ensures that any price rise is justified based on what it costs to get energy to you.
Your total bill won’t be capped. This is because the cap only sets the price for each unit of energy you use. How much you pay also depends on how much gas or electricity you use. If you use more energy, then your bill will go up. If you use less, then it will go down.
Your capped tariff price will also depend on:
- the region you live in
- the tariff you're on and how you pay
- the kind of meter you have.
It's best to speak to your supplier to understand your specific charges.
Could my bills rise?
Your bills could go up under the cap, if the cost of getting gas and electricity to your home goes up and depending on how much energy you use. But through the cap, we will make sure that your supplier justifies any rises and that they are fair. Suppliers can’t charge you anything above the cap.
Why is the price cap temporary?
The cap is temporary while we introduce other reforms, such as faster switching, and smart meters designed to make the market work better, and to protect consumers.
Can I still reduce the price I pay for my gas and electricity?
The price cap gives you peace of mind that you are paying a fairer price based on the underlying costs to serve energy to your home.
You don’t need to do anything to be price protected – your supplier must apply the cap. But, even if you are covered, you should still shop around to see if you can save by switching to a different tariff or supplier. It is likely there will be offers which could save you even more money on your gas and electricity than staying on an energy contract covered by the price cap.
See our energy guides below for more advice.