Since the introduction of Ofgem's energy price cap in January 2019, most suppliers have based energy prices of their "default" or standard variable rate tariffs on the rate of the price cap.
Following an increase in the price cap level announced in August 2022, suppliers raised their prices for customers on standard variable tariffs to £2,500 (illustrative for average use dual fuel customers paying by direct debit) under the Energy Price Guarantee, when they will be capped until July 2023.
However, Ofgem has announced that the price cap level will drop to £2,074 per year for an average use household from July 2023, which means that standard variable tariffs will reduce to that level.
In September 2021, the price of wholesale energy rose to a point where it became untenable for suppliers to keep offering deals at the rates they had been. This meant that the prices of fixed energy deals soared to the point that most of them became much more expensive than the capped standard variable tariffs, even at the then price cap level of £1,277.
There are few options available - usually you would switch to a fixed deal to save, but there are no fixed deals to switch to. Most customers may find it best to stay on standard variable tariffs for now and see what the market looks like next year, rather than switching to an expensive fixed deal for as much as three years.
If you're on a standard variable tariff and your supplier tells you its energy prices are going up, you would usually just switch to a new supplier (or even another tariff with your current supplier) to get a better deal - though, as mentioned, this might not be the case now.
Whether or not your energy supplier has recently increased energy prices, it's always a good idea to run an energy comparison to see if you could save - though this is currently unlikely.
Otherwise, the best option is to try and manage energy usage around the home in order to keep bills as low as possible. Utrack, Uswitch's new mobile app, can help. Find out more below.
Though it's unlikely you'll be able to switch to a cheaper deal at the moment, it's still worth knowing how the process works. Usually, it's fairly simple to switch energy supplier.Here's what you need to hand:
A recent energy bill
Your bank information (to set up your direct debit)
If you can't find an energy bill we can estimate your usage based on the size of your home.
That's it! We'll do all the rest, including comparing top deals in your area, and providing savings figures, customer ratings, and the ability to filter by preferences including green plans and more.
For step-by-step instructions on how to switch energy suppliers after a price rise, read our dedicated guide about how to switch your supplier for gas and electricity here.
• Be the first to hear when deals arrive • Save your details for a faster switch
There are several factors that can cause suppliers' gas and electricity prices to go up or down.
Market forces can cause the wholesale price of gas to rise or fall which then has a knock-on effect on energy bills. This is why prices increased so dramatically throughout 2021 and 2022. However, wholesale gas prices aren't always the cause of energy price changes.
In recent years, the most significant gas and electricity price rises and cuts have been in reaction to changes in Ofgem’s energy price cap. But how can a cap change the prices suppliers are allowed to charge?
The cap was first introduced in January 2019 and limits the amount that suppliers can charge for their default gas and electricity tariffs. Many suppliers, including the big six energy providers, set their rates right up to the maximum allowed by the cap.
Just a month after its implementation, Ofgem announced it would increase the rate of the cap to £1,254 per year. Many suppliers reacted by announcing price rises to come into effect when the price cap changed in April 2019.
The cap has since been reviewed twice a year, but Ofgem has announced that the cap will be reviewed four times a year from 2023 (despite prices being frozen from October 2022).
Gas is pumped out of the ground and electricity is mostly generated using a mix of fossil fuels like oil, gas and coal. These are all natural supplies, which are costly to get hold of, and more importantly, in limited supply.
Despite there being a limited supply of fossil fuels, the technology to find and extract them has advanced significantly and has meant that there is no shortage of gas and electricity.
The limited supply of fossil fuels could impact gas and electricity prices if energy companies were looking very far ahead into the future, but in the short-to-medium term, supply should not be a factor.
Wars in oil-rich countries and conflicts between countries over gas pipelines can impact wholesale prices. For example, wholesale gas prices in the UK have spiked when supplies in Ukraine, Iraq and Syria have been threatened in recent years.
For the most part, these spikes have been temporary, and the supply of gas and electricity has remained constant in the UK throughout these conflicts, so it isn’t the ultimate factor.
There are some arguments that energy providers could afford to keep prices low but instead choose to maximise profits by raising prices. However, the industry regulator Ofgem aims to provide transparency in the way the sector prices its gas and electricity. Ofgem also aims to keep the market competitive to ensure that consumers get the fairest price possible. You can go to the Ofgem website to see how much profit suppliers made each year.
To some degree all of the above arguments could have some impact on your energy prices, but consumers are able to take back control by switching. By comparing energy prices you can switch to a cheaper provider and ensure that energy gas and electricity suppliers have to stay competitive to retain their customers.
Because energy suppliers have to keep the cost of their standard variable tariffs within the price cap, their prices can drop when the cap rate is reduced. This has happened several times since the introduction of the cap - where the price cap rate has fallen, suppliers have been forced to drop their energy prices too. It's important to remember though that the price cap only applies to suppliers' standard variable tariffs, with most fixed deals being much cheaper to start with.
Another element is competition. Energy suppliers need your custom to be profitable. If their customers leave because there's a cheaper energy provider or one with better service, then they lose out.
It's possible that prices on standard variable tariffs will increase in 2023 - although the price cap is at the £2,074 level until October, it may increase after that. However, wholesale energy prices have been dropping since December 2022, so the next price cap level (due to be announced in August 2023) could decrease further drop below £2,500.
For more information, head to our energy market Q&A guide.
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