The energy price cap is a limit on the unit rate and standing charge that energy suppliers can charge for their standard variable - or ‘default’ - tariffs. The rate is set by Ofgem, the energy regulator, and is reviewed four times a year.
The good news is that this is the third price cap decrease in a row after four consecutive increases, mainly due to the fact that volatile wholesale energy prices are beginning to settle down and provide customers with some price stability - albeit with prices much higher than they were two years ago.
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. If the price cap level is forecast to rise above £3,000, the EPG would come into effect again. Currently, though, Ofgem's price cap is the prevailing standard variable tariff cap for customers to be aware of. It also opens the door for suppliers to potentially start offering fixed deals again, which would offer customers some sorely needed price certainty again.
It's important to remember that the cap is based on unit rates - that's the actual price that is changing - but in order to more clearly and easily report it, the "cap level" is based on an average use dual fuel customer paying by direct debit. This means that you could actually pay more than the cap amount if you live in a bigger house and/or use more energy.
The cap rate only applies to standard variable tariffs. These types of tariff are typically the most expensive plan that a supplier offers. In a functioning energy market, if you haven't switched energy before, or you've rolled off a fixed energy deal, you're likely to be on one of these tariffs.
It's difficult to predict where energy prices will go because the wholesale market is still so volatile. However, Cornwall Insight, the energy analyst, regularly examines the latest developments and releases predictions for future price cap levels every few weeks.
The table below shows where the price cap level could go as we head into 2024.
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 currently no similar support measures being planned for the 2023-24 winter, but there are more general cost-of-living payments available for those on certain benefits.
£900 for those on certain means-tested benefits to be paid in spring 2023, autumn 2023 and spring 2024
£300 for pensioners (in addition to the Winter Fuel Payment) to be paid in winter 2023-24
£150 for those on disability benefits to be paid in summer 2023
Financial help from the Household Support Fund (via local councils).
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 £1,861.
A new cap rate of £1,960 was announced alongside the new SVT cap - this will also be valid from January to the end of March 2024.
There are a few reasons why the energy price cap has come under fire from energy experts:
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, and this then having the knock-on effect of passing those costs on to customers in one hit when the cap level rises, rather than being able to spread those costs over a longer period of time. This reasoning is why the cap will now be reviewed four times a year, with Ofgem hoping that any wholesale cost savings can be more quickly passed on to customers.
Better savings can (usually) be found by switching — This isn't necessarily true anymore given the wholesale energy market situation that has caused fixed deal rates to rocket.
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.
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.
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 drop in April 2024.
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.
The price cap is set by Ofgem, the regulator for the energy industry.
The cap level 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 February 2024 for the April update.
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 Green Energy UK are the three suppliers who have been granted permanent exemption from the price cap.
Find out what the latest developments in the UK energy market are and what they mean for you in our round-up.Learn more
The government has announced a series of relief measures aimed at helping energy customers through a difficult financial period. Find out what's on the table here.Learn more