Prepayment energy price cap

Mae’r dudalen yma ar gael yn Gymraeg.
The prepayment tariff price cap is here to ensure you pay a fairer price for your gas and electricity, and to protect against overcharging. Here we explain how it works and applies, and how you can save even more by switching. 

What is the prepayment price cap?

The prepayment price cap (sometimes called a ‘safeguard tariff’) limits how much a supplier can charge you per kWH of electricity or gas. This is the ‘unit’ measure which your bill is calculated from.

Suppliers can't set their prices above the tariff cap, and must set their prices at the level or below it. The level we set reflects an estimate of the costs to supply your energy, and so it protects you from being overcharged.

It currently applies if you:

It does not apply if:

  • your prepayment smart meter is ‘fully interoperable’, meaning your meter can continue to fully work its smart functionality if you switch supplier. You can find out more about meter types at Understand smart, prepayment and other energy meters.
  • you have chosen to be on a fixed-term energy tariff. These tariffs are more likely to be good value.

If you get the government’s Warm Home Discount and are on a standard variable or default tariff, you are protected by the prepayment price cap until the end of 2018, after which you will transfer to the ‘default tariff’ price cap. Find out more about the default tariff price cap.

Do I have to apply for the benefit?

No. Your supplier must automatically ensure its charges to you fall to the level or below the prepayment price cap we set if you have a prepayment meter (excluding ‘interoperable’ smart meters).

If you get the government’s Warm Home Discount and are on a standard variable or default tariffopen key term pop-up, you are protected by the prepayment price cap until the end of 2018, after which you will transfer to the ‘default tariff’ price cap. Find out more about the default tariff price cap.

How long will it last?

For prepayment meter customers, it’s due to end by 2020. By then we expect smart metersopen key term pop-up, alongside other advances in the energy industry, to bring about easier access to better deals. 

How is the level set?

We update the level of the prepayment price cap every six months, in April and October. As the energy regulator, Ofgem administers and sets the level for the price cap, using a methodology set by the Competition and Markets Authority (CMA). We do this based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity services to these customers.

Calculation

To calculate what the level should be, we:

  • take the benchmark figure for the prepayment meter price cap, initially set by the CMA

  • update the CMA benchmark using three indices:

    • wholesale energy prices for the six months before the safeguard is set
    • environmental levy forecasts from the Office for Budget Responsibility.
    • inflation from the Consumer Price Index (CPI)
  • calculate an allowance for network charges (the costs to transport energy to you) from network companies’ published charges. This causes the level of the cap to vary by region.
  • add ‘headroom’, this is a design of the CMA’s methodology to allow suppliers to offer competitive deals beneath the level of the cap.

We publish the price cap levels for a customer that does not use any energy, and for a customer that uses an assumed amount of energy. The assumed value works in a similar way to typical domestic consumption values you may see on price comparison websites, where they are used to calculate the cost of a typical energy bill. We can then get a level for all other possible consumption levels using these values.

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.

Find out more about the network part of your bill at The energy network: How it works for you

What is the level now?

You can view the prepayment tariff price cap levels on our page What are the energy price cap levels now? You can also see a visual breakdown of the different cost factors that influence the tariff level each time we update it.

Why was the prepayment price cap introduced?

The Competition and Markets Authority (CMA) introduced the prepayment price cap to cover over 4 million households on prepayment meters in April 2017, and it is administered by Ofgem.

The CMA found that if you’re a prepay customer you have fewer tariff choices and pay disproportionately more than customers who pay in other ways, like direct debit or credit. You can see how prepayment prices compare on the Ofgem Data Portal.

They also found prepayment customers to be more likely in vulnerable circumstances and in debt, and so further disadvantaged in the market.

On 2 February 2018, Ofgem extended the price protection of the prepayment price cap to cover vulnerable customers on a poor value standard variable or default tariffopen key term pop-up who receive the Warm Home Discount. It will protect around one million more households.

Warm Home Discount households on the prepayment price cap will move to the government’s ‘default tariff’ price cap when it starts on 1 January 2019.

What else?

Will my bills fall under the price cap?

Yes, if you’re on a poor value deal. Suppliers must cut their prices to the level or below the caps we set. So if you’re on one of the tariffs currently priced above the cap, you will save money. 

If costs fall, the caps make 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.

A price cap won’t cap your total bill, it only sets the price for each unit of energy you use. That’s because the amount 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 depend on:

  • the region you live in
  • the tariff you're on and how you pay
  • the kind of meter you have.

We will set the level of the cap every six months to reflect the latest estimated costs to supply gas and electricity. This ensures you will always pay a fair amount, as the price you are charged can only ever go up in line with the underlying costs to get energy to you.

You can see the current levels of the prepayment price cap on our price cap data page.

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 prepayment price cap temporary?

It’s temporary while we introduce other reforms, such as faster switching, and smart meters which will make access to energy tariffs fairer for everyone.

Can I still reduce the price I pay for my gas and electricity?

The prepayment 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 caps.

More than half of UK households have never switched or have only switched once, and are on more expensive ‘default’ and ‘standard variable’ tariffs as a result. We’re making the switching process faster and more reliable too.

Where you can, switch to a fixed tariff to cut your bill prices further – saving money on your bill could also make it more affordable to repay a debt if you have one. See our energy guides below for more advice.

What next?

View the set price cap levels

Learn how to switch & save on your gas and electricity now

See our Your questions answered FAQ

Who to contact? Find your supplier contact details

Prepay or prepayment meter

A prepayment meter tariff means you pay upfront for your gas or electricity use. You can ‘top up’ using an app on your phone, by text or through a token or key card at a shop. More.

Warm Home Discount

The Warm Home Discount (WHD) is a government scheme aimed at tackling fuel poverty in Great Britain. Under the scheme, larger energy suppliers support people who are in fuel poverty or are at risk of it. More.

Standard variable tariff

A basic tariff with variable prices that can go up and down with the market. You could be put on a standard variable tariff or a tariff you have not chosen (a ‘default tariff’) if your fixed-term tariff contract ends and you have not chosen a new one. They usually cost more than a fixed-term tariff. More.

Default tariff

If you’ve never switched energy supplier or have switched only once, you’re likely to be on a poor value, more expensive ‘default’ tariff. Default tariffs, including standard variable tariffs, are a basic tariff from an energy supplier. More.

Default tariff

If you’ve never switched energy supplier or have switched only once, you’re likely to be on a poor value, more expensive ‘default’ tariff. Default tariffs, including standard variable tariffs, are a basic tariff from an energy supplier. More.

Smart meter

The next generation of energy meters with real-time data to help consumers control how we buy and use energy. More.

Default tariff

If you’ve never switched energy supplier or have switched only once, you’re likely to be on a poor value, more expensive ‘default’ tariff. Default tariffs, including standard variable tariffs, are a basic tariff from an energy supplier. More.