What is the energy price cap? How the Ofgem price cap could affect you in 2024

What was the Energy Price Guarantee?

In October 2022, when Ofgem's price cap level was forecast to rise to £4,279 in January 2023, the Energy Price Guarantee was introduced to protect customers from unprecedented energy bills. It was designed to act as a "safety" price cap operating at a level of £2,500 per year (subsidised by the government) for average use dual fuel customers.

When the price cap level was announced in May 2023, Ofgem and the government also announced that the EPG's threshold would rise to £3,000. However, it has now been withdrawn completely.

What if I'm struggling to pay my energy bills?

During the 2022-23 winter, the government had provided financial support to energy customers in the form of the Energy Bills Support Scheme, which gave each household a £400 discount on energy bills.

There are no similar support measures currently available. However, there is financial help from the Household Support Fund (via local councils) and from various charities and organisations both nationally and locally.

You can also check to see if you can get the Warm Home Discount, Winter Fuel Payment and/or Cold Weather Payment, which are paid every year to eligible households.

What is the prepayment meter cap?

The price cap affects the four million prepayment customers in the UK in the same way that it affects those on standard variable tariffs. There is a separate cap for prepayment tariffs, which is reviewed independently of the SVT cap by Ofgem.

The current prepayment price cap level is £1,669.

Why is the energy price cap controversial?

There are a few reasons why the energy price cap has come under fire from energy experts:

1. Significant knock-on costs to customers - Since the increase of energy prices in September 2021, the cap has been criticised by suppliers for not allowing them to charge more for standard variable tariffs. This means costs are passed on to customers in one hit when the cap level rises. This is why the cap is now reviewed four times a year, with Ofgem hoping that any wholesale cost savings can be more quickly passed on to customers.
2. Better savings can (usually) be found by switching — This was the case but isn't necessarily true anymore given the wholesale energy market situation.
3. A cap hurts competition — Introducing a cap does not encourage suppliers to compete for business by offering better tariffs or improving customer service. There is no pressure on energy companies to innovate if customers believe they are ‘safeguarded’ from high costs and less likely to take their business elsewhere.
4. False sense of security — The cap can still go up (or down) as energy prices will always be subject to wholesale costs, distribution costs and other factors. The concern is that consumers will assume the price cap means they are protected from fluctuating costs by the government’s cap.

Does the price cap mean I don't need to switch?

Not usually, no. A price cap applies to you if you’re on a standard variable rate tariff. These tariffs are already some of the most expensive on the market, so it’s likely you could (usually) save by at least switching your energy tariff, if you’re not keen on switching suppliers.

Ofgem can raise or lower the level of the cap depending on the wholesale market and, at the moment, the cap is likely to stay at a high level until spring 2025.

If you're interested in potentially switching, you can compare energy prices and see if there are any deals that are right for you by entering your postcode below.

How is the energy price cap calculated?

The price cap is set by Ofgem, the regulator for the energy industry. The way the cap level is calculated is based on a range of factors, such as the wholesale cost of energy, network costs, policy costs, operating costs and prepayment meter costs.

Ofgem has committed to reviewing the level of the energy price cap four times a year in February, May, August and November. The next review is set to take place in November 2024.

Are any suppliers exempt from the price cap?

Ofgem reserves the right to grant temporary or permanent exemptions from the price cap for tariffs and suppliers which make significant efforts to generate and supply green energy to customers. This means that they are allowed to charge rates that exceed the price cap unit rate on SVTs - in other words, the price cap does not apply to them.

Ecotricity, Good Energy and 100Green are the three suppliers who have been granted permanent exemption from the price cap.

How has the price cap level changed over time?