Energy price cap explained

The energy price cap is a limit on the price people pay for their energy. The price cap has been replaced by the Energy Price Guarantee as the cap on consumer energy bills until April 2024.

What is the energy price cap?

The energy price cap sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use. How much you pay depends on how much energy you use.

The cap is a government protection, calculated by Ofgem. At Ofgem we regulate energy suppliers, but we do not regulate the oil and gas production sector. The cap ensures that the profit energy suppliers make is capped. 

The energy price guarantee is a temporary additional measure to protect consumers from the recent significant increases in wholesale gas prices. The guarantee was put in place on 1 October 2022 and will last until April 2024. It means that consumers will pay less for their energy than they would under the price cap.

For further information on the Energy Price Guarantee, please visit Energy bills support factsheet - GOV.UK (www.gov.uk).
 

Why is there a price cap?

Customers who don’t shop around and get stuck on their supplier’s basic default energy tariff are disadvantaged in the energy market.  

The price cap is applied to customers on a default energy tariff, whether you pay by direct debit, standard credit, prepayment meter, or have an Economy 7 (E7) meter. The cap ensures that prices for customers on default energy tariffs are fair and cost-reflective.  

How is the energy price cap set?

Suppliers can't charge you more for each kilowatt hour (kWh) than the cap we set and we monitor suppliers to make sure their default tariff rates comply.

Here are some examples of the things we include when calculating the price cap:

  • Wholesale energy costs. This is the amount suppliers pay for the energy they supply to consumers.
  • Network costs. These relate to building and maintaining the energy networks that carry energy to consumers' homes.
  • Policy costs. These relate to government schemes to save energy, reduce emissions and promote renewable energy.
  • Supplier operating costs
  • VAT: 5% tax is added to the level of the tariff.

We calculate the price cap using a typical domestic consumer with medium energy use. Find out more about average energy use.

The price cap doesn't cap your total bill, which will change depending on how much energy you use. The way you pay for your energy, where you live, your meter type, as well as your consumption will affect your energy bill.  

We update the level every three months to reflect inflation and changes in underlying costs.

What’s happening to fuel bills?

Right now, we’re seeing volatile gas prices that are affecting everyone around the world. As a result, the amount suppliers pay to buy energy on the wholesale market has risen sharply.

And because gas is used for electricity generation, this pushes up retail electricity bills as well as retail gas bills.

What’s Ofgem doing?

Part of our duty as a regulator is to work for you as a bill payer. Our experts watch the market and work to set a fair price cap that reflects the global situation. 

Government is also doing its part rolling out the new energy bills support scheme and the energy price guarantee.   

We’re also doing other things to help stabilise the market over the longer term to reduce our reliance on gas and help protect customers from similar price shocks in the future. For more information see:

-    Energy Bills Rebate: How the Government plans to help rising bills
-    Advice and services if you're struggling with energy costs

For further information on the Energy Price Guarantee, please visit Energy bills support factsheet - GOV.UK (www.gov.uk).

The energy price cap will continue to be calculated and indicates what default tariff consumers would pay if the Energy Price Guarantee were not in place.

Energy price guarantee

To help protect consumers, the Government announced the Energy Price Guarantee which came into effect on 1 October 2022.

This will reduce the unit cost of electricity and gas so that households with typical energy use in Great Britain would pay, on average, around £2,500 a year on their energy bill until 31 March 2022 and around £3,000 a year until 31 March 2024. These figures are based on a household with typical consumption on a dual electricity and gas bill paid by direct debit.

The amount you pay will depend on how much energy you use, where you live, how you pay for energy, and your metering arrangement. 

Customer with typical usage, paying by direct debit* 

The table below shows the average capped rates for a customer with typical usage paying by direct debit on a default tariff. 

 

Energy Price Guarantee - From 1 October 2022

Electricity 

£0.34 per/kWh
Daily standing charge: £0. 46

 Gas

£0.10 per kWh
Daily standing charge: £0. 28

 

*Rates are averages and will vary by region, payment method and meter type. Contact your supplier for personalised information.

Standing Charges 

Average standing charges for customers on default tariffs will remain capped in line with the levels set for the default tariff cap for a typical dual fuel customer paying by direct debit.

Struggling to pay your energy bills?

If you are worried or struggling to pay your energy bills, contact your energy supplier as soon as possible. We’re working closely with energy companies to make sure they support you in any way they can. Our rules mean you can ask to agree repayment plans and you may be eligible for extra help with your energy bills or services.