Energy plans: What is the energy safeguard tariff (or ‘price cap’)?

Mae’r dudalen yma ar gael yn Gymraeg.

This guide will help you understand the safeguard tariff (sometimes called a ‘price cap’) for prepayment meter customers and those receiving the government’s Warm Home Discount. It explains who the safeguard applies to, how long it lasts and how we set the prices for it.  

Safeguard tariff explained video

What is the safeguard tariff?

It applies if you:

  • pay for your gas or electricity in advance using a prepayment meter (including through a token-operated meter)
  • receive the Warm Home Discount.

It does not apply if:

The safeguard tariff limits how much a supplier can charge you per kWH (this is the ‘unit’ measure which your bill is calculated from). Suppliers cannot charge you more than the level of the tariff that Ofgem sets, and must set their prices below it. The level we set reflects an estimate of the true costs to supply your energy, and so it protects you from being overcharged.

Do I have to apply to benefit?

No. Your supplier must automatically ensure its charges to you fall below the level of the safeguard tariff if you get the Warm Home Discount or have a prepayment meter (excluding ‘interoperable’ smart meters).

Will my bills fall?

Your bill under the safeguard tariff will depend on:

  • the supplier you’re with
  • the tariff you're on
  • how much energy you use 
  • the kind of prepayment meter you have.

We set the level of the safeguard tariff to reflect an estimate of the true cost to supply energy to you. This price protection stops suppliers from overcharging you.

The tariff doesn’t cap the cost of your total bill. 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.

How long will it last?

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

We’re working with the government to put in place protection for all customers – including the vulnerable – who are on poor value ‘default’ tariffs (an energy plan you have not chosen) later this year.

If the government’s wider price protection is not in place for next winter (2018/19), we plan to extend the safeguard tariff to a further two million vulnerable households for next winter too, so those who need it most get help as quickly as possible.

How is the level set?

We update the level of the safeguard tariff every six months, in April and October. As the energy regulator, Ofgem administers and sets the level for the safeguard, 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 a prepayment and Warm Home Discount customer.

Calculation

To calculate what the level should be, we:

  • take the benchmark figure for the safeguard tariff 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 safeguard level 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 safeguard 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 safeguard tariff level for each region and meter type on our industry guidance page.

You can also see a visual breakdown of the different cost factors that influence the tariff level each time we update it on the Ofgem Data Portal.

Why was the safeguard tariff introduced?

The Competition and Markets Authority (CMA) introduced the safeguard tariff 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.

From 2 February 2018, Ofgem extended the price protection of the prepayment meter safeguard tariff to cover vulnerable customers receiving the Warm Home Discount. It will protect around one million more households.

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

The safeguard tariff we administer gives you peace of mind that you are paying a fairer price based on the real costs of energy. But you could still save by shopping around to a different tariff or supplier. 

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.

More energy guides