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What is the energy price cap? How the Ofgem price cap could affect you in 2021

What is the energy price cap? How the Ofgem price cap could affect you in 2021

If you’re on a standard variable or default energy tariff, your plan will be subject to Ofgem’s energy price cap.

But what is the price cap and how does it work? Find out everything you need to know about the energy tariff cap — including whether this default tariff cap will help or hurt your bills — right here.

Compare energy prices here

It's a good idea to compare energy regularly to see what the latest prices mean for you, even though there are fewer deals available. Enter your postcode to get started.

What is the default tariff cap?

The default tariff cap is also known as the safeguard tariff or, more commonly, the energy price cap. The 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 twice a year.

A new cap rate of £1,277 was announced in August 2021. This 12% increase came into effect in October 2021.

This means that, not only has the cap level risen twice in the same year for the first time, but the level is at its highest ever point (£23 more than its previous high point of £1,254). This is largely because of the rocketing price of wholesale energy, which meant suppliers had to pay more for it, and gave Ofgem the impetus to allow them to charge higher prices.

The cap rate is based on a typical dual fuel customer paying by direct debit, meaning you could actually pay more than the cap amount depending on your usage.

Since the energy price cap was introduced in January 2019, most suppliers have set their default prices very close to the maximum cap rate.

The cap rate only applies to standard variable or default tariffs. These types of tariff are typically the most expensive plan that a supplier offers. 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.

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.

A new cap rate of £1,309 was announced in August 2021. This £153 increase came into effect in October 2021.

Cheapest prepayment energy plans from Uswitch

Supplier Plan name Price

Based on average bill sizes for a medium energy user on a dual fuel prepayment plan, and averaged across all regions. This information is updated hourly with energy plans which are available to switch to through Uswitch. To appear in this table, plans must be available in at least 7 of the 14 regions.

Why is the energy price cap controversial?

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

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.

We explain more in our Energy Price Cap Mythbuster video. Watch it now to find out why it doesn't necessarily protect you from paying too much for your energy.

  • Read the transcript

    Hi! You’re probably aware of the energy price cap, which was introduced to stop energy suppliers from overcharging customers on default or standard variable tariffs. The cap limits the rates that suppliers can charge per unit of gas and electricity on these plans.

    But if you think you know all there is to know about the price cap, you might be wrong. There are some common misconceptions about the price cap that could mean you’re paying too much for your energy bills.

    Myth 1: My energy bills won’t exceed the amount set by the price cap.

    FALSE.

    People talk about the price cap level using average figures, but the amount you pay depends on how much energy you use and where you live. Remember, this is a cap on unit rates, not your actual bill - the more energy you use, the higher the costs will be.

    Myth 2: The price cap will stay the same for at least a year, meaning my costs will too.

    FALSE.

    Ofgem, the energy market regulator, reviews the cap twice a year. The level of the cap can go up or down at these times.

    If the cap rises, the cost of standard variable tariffs will rise too. But even if the cap drops, a good-value fixed deal is still likely to be cheaper.

    Myth 3: I’m on a good deal if I’m paying a lower price than the price cap level.

    FALSE-ISH.

    You might be paying less than the price cap level, but it’s likely there’s a cheaper deal out there that can help you lock in your energy prices for a year or more.

    The price cap doesn’t guarantee you’re on a good-value energy tariff. The only reliable way of doing that is to look for cheaper deals on Uswitch. Why not get started now?

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

Not usually, no.

It's important to compare energy prices using a price comparison site like Uswitch to find out if you could get a cheaper deal by switching - though as noted above, this might not be possible due to fixed deals now (in the main) being much more expensive than the cap level of £1,277.

A price cap only 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 save by at least switching your energy tariff, if you’re not keen on switching suppliers.

Compare energy prices here

It's a good idea to compare energy regularly to see what the latest prices mean for you, even though there are fewer deals available. Enter your postcode to get started.

Ofgem can raise or lower the level of the cap depending on the wholesale market and, at the moment, the cap is expected to rise again in April 2022. You may want to secure your rates with a fixed deal, but the price you pay could be much more expensive than the cap level, so staying on an SVT or waiting to roll onto one if you're already on a fixed deal might be the best course of action for you.

Cheapest fixed plans now available through Uswitch

Supplier Plan name Price

Based on average bill sizes for a medium energy user on a dual fuel plan paying by monthly direct debit, and averaged across all regions. This information is updated hourly with energy plans which are available to switch to through Uswitch. To appear in this table, plans must be available in at least 7 of the 14 regions.

How is the energy price cap set?

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 twice a year in February and August, effective from 1 April and again from 1 October. The next review is set to take place in February 2022.

How has the price cap level changed?

Price cap graph

The price cap was confirmed by Ofgem in September 2018 at an initial cap of £1,136, with a commitment to review the cap level twice a year based on any changes in the wider market.

The cap didn’t actually come into force until 1 January 2019, by which time the rate had been increased by a pound to £1,137. After its first review, it was announced in February 2019 that the cap would be raised to £1,254, effective on 1 April.

The price cap level was next reviewed in August 2019. The rate was reduced by £75 as a response to falling wholesale costs across the continent. The new cap rate of £1,179 came into force on 1 October 2019.

In its February 2020 review, the cap was reduced by £17. On 1 April 2020, the new rate came into force. By this point, the level had changed to £1,126 due to a change in the way Ofgem calculates average usage.

On 7 August 2020, Ofgem revised the price cap rate once again, setting it at £1,042. The new default tariff cap rate came into effect from 1 October 2020.

In February 2021, the cap level was increased by 9% to £1,138, which came into effect from April 2021.

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