What does Energy Price Cap mean and what is it in 2021?

What is the current Energy Price Cap?

This means that now prices have been restored to pre pandemic level of costs, a decision that has been defended by the Chief Executive of Ofgem since its announcement.

What this price cap means that your annual bill cannot exceed this amount. If it does, then you are encouraged to report it to Ofgem who will investigate the matter and potentially get you reimbursed.

In the table below, you can see what the national average Energy Price Cap has been set to for customers paying with direct debit for dual fuel in the past:

Is the Energy Price Cap the same every year?

No, because the cost of living (and the cost of supplying energy) are constantly changing, the Energy Price Cap is always changing to reflect that. Ofgem constantly reviews the cap and revises it every 6 months. Once in April for the start of the financial year, and again in October.

What is the Energy Price Cap of my area?

Is the energy price cap the same everywhere?

No, it is not, there are 14 unique regions in the UK that each offer three energy fuel types; single rate electricity, dual rate electricity & gas. Each of these fuel types have three different price caps that correspond with with three different payment methods. The three payment methods that each have their own price cap are standard credit (also called paying upon receipt), prepayment, and finally “other payment methods” (which includes Direct Debit).

This means that there are actually 126 different price caps that need to be acknowledged by every energy supplier in the UK. Any supplier that charges over the price cap can be fined by Ofgem, the governing body that oversees energy suppliers and sets the energy price cap. This can seem complex, but with the right resources, this information could potentially help you save on your energy bill!

Energy Price Cap of Gas

First we are going to look into the price caps associated with the costs of Gas in the UK. Gas is one of the most important energy fuels required to keep our homes comfortable and warm, it is an essential utility that keeps us being productive. However, it can also be expensive particular during times such as winter when it is in high demand.

Here we compile all of the gas price caps in each of the 14 regions within the UK:

Energy Price Cap of Single Rate Electricity

Single rate electricity is one of the most commonly used fuel types in all of the UK, it’s pricing cap has implications on millions of households and has the potential to be a direct contributor to fuel poverty, an issue that has been plaguing the UK for some time. The price caps are designed to be a fair and affordable blend to ensure that the supply and demand or electricity does not lead to energy suppliers overcharging their customers.

Below you can see the price caps for single rate electricity in all 14 regions within the UK:

Energy Price Caps for Dual Rate Electricity in the UK

Dual rate electricity, often referred to as E7 electricity because they are only available to homes that have Economy 7 meters, is becoming an increasingly popular tariff option for households that use more energy at night. This is because dual rate electricity tariffs have one unit rate for peak hours of energy consumption, such as during the day, and a second unit rate for off-peak hours of consumption, such as at night.

Here we will go over the price caps associated with dual rate electricity in each of the 14 regions in the UK and break them down by payment method for your convenience:

What does the Energy Price Cap mean?

The Energy Price Cape is currently set up in a unique way in that it offers different price depending on a number of factors including fuel type, location and even payment method. As a result there is actually several energy price caps rather than just one set cap, this was done intentionally to ensure healthy competition within the energy industry throughout the UK and to ensure customers were being charged fairly.

What this means is that the maximum price that an energy company is allowed to charge their customers can be different from city to city as a result of regional differences or even from neighbor to neighbor depending on their payment methods. The implication of this is that if you are not carefully selecting your energy tariff plans and payment methods, you may be paying more than you need! ​

Why was the Energy Price Cap made?

Many younger consumers may not remember this, but prior to the 1990s the national energy grid and marker were run by the government. Then, in 1990 the UK energy market (including the creation and supply of energy in England and Wales) was privatised under Margaret Thatcher’s government. It was hoped that privatisation would result in better choice for consumers and better quality of service as a result of direct competition between energy suppliers. Whether or not this measure succeeded is open for debate, one thing’s for sure; energy prices rose exponentially over the ensuing 30 years.

Even as (relatively) recently as 2004, the average home paid just £277 for gas and £288 for electricity. Around £565 on total. A decade later, average dual fuel costs have more than doubled to £1,344. As prices continued to increase, consumers on low and fixed incomes began to struggle to meet the rising costs of energy. Those on default or standard tariffs are most commonly at risk of being seriously affected.

Even though Office of Gas and Electricity Markets (Ofgem) was established to act as a regulatory body in 2000, it placed no restrictions on what energy suppliers could charge at the time, and because the free market is a free market, energy suppliers had complete autonomy over their pricing.

However, in January of 2019, Ofgem finally intervened to limit the energy prices that were being suppliers in the UK were charging their customers. While some may argue how effective it is when it comes to boosting healthy competition or supporting low income households, there is certainly no denying that it was a necessary step to ensuring fuel poverty levels in the UK do not continue to rise.

What happens if companies don’t obey the Energy Price Cap?

As Shell Energy found out in mid-2019.

The company (which had rebranded after acquiring First Utility) was found to have overcharged around 12,000 electricity and gas customer accounts to the tune of £100,736.63 collectively.

Once the breach was discovered by Ofgem, it had to not only refund all the 8,800 customers that had been affected, it also had to make a payment of £200,000 to Ofgem’s Consumer Redress Fund. The total payment was around £390,000. You can read more in this press release from Ofgem.

Is there a downside to the energy price cap?

The energy cap is designed to protect consumers and ensure that they never have to pay over-inflated energy prices. But is there a downside to this cap for anyone other than energy company stakeholders?

While few consumers are sympathetic to the plight of big energy companies, those with a strong ecological and ethical focus will want to spare a thought for a way in which the Energy Price Cap could theoretically hurt energy companies.

One potential concern among those in the energy market is that potentially reduced revenue won’t just be taken out of executives’ bonuses. It’ll be taken out of important areas like research and development. In an age where greener energy is a high priority for energy companies and consumers alike, it’s important to be able to invest sufficient capital into finding new ways to create cleaner, greener energy without relying on finite natural resources.

This is why Ofgem looks at a number of factors in order to ensure that the Energy Price Cap results in fair energy prices for consumers, while also allowing energy companies sufficient potential margins to be able to operate in innovative ways. Ofgem has significant data on how much it costs energy companies to operate, and it requires all energy companies to publish annual statements detailing their revenues, costs and profits. You can find out more information about this here.

Is your current bill dangerously close to the Energy Price Cap? We can help!

The Energy Price Cap is an extremely helpful way of ensuring that energy suppliers charge their customers fairly, but that doesn’t mean that your energy bills can’t be cheaper! Especially if energy costs are at or close to the current Energy Price Cap.

Not everyone is financially recovered from impact of the Covid-19 Pandemic, so while prices are starting to rise now is the best time to switch if your energy costs are too high!

We can help to manage every aspect of your move from end-to-end. No hassle, no headaches… All you can have to do is sit back. Relax. And enjoy your incredible energy savings that are well below the Energy Price Cap!

Sound good?

Call us today on to find out more. We’re available from 8.30 am to 5.30 pm.

If you want to read more on this topic, check out these guides:

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• Compare energy deals

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• Will Brexit affect energy prices

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• Electricity prices

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• Gas prices

FAQ

How is the Energy Price Cap Calculated?

In order to ensure that the Energy Price Cap is fair, Ofgem bases its calculations on the cost of supplying energy to homes that are incurred by energy providers. This might include everything from wholesale energy costs to the costs of maintaining the network, environmental / social costs and other operational costs that come with doing business.

As such, it helps to ensure that they are able to remain profitable while also preventing consumers from being unfairly charged.

When does the Energy Price Cap change?

The Energy Price Cap is re-evaluated every April (the start of the financial year) and October. This helps to ensure that it is well matched to the cost of living for consumers, as well as the cost of supplying energy incurred by the companies.

How much is the Energy Price Cap for 2021?

At the time of writing the UK Energy Price Cap is set at £1,277. This has been set since October of 2021. However, this will change in April 2022 when it is re-evaluated.

Is the Energy Price Cap the lowest price on the market?

Not at all! The cap was designed to help consumers with standard or default tariffs. These almost never offer the best value for money. In fact, even with the newly reduced cap, there are still dozens of tariffs on the market that could save you hundreds of pounds on your energy bill. Let us find the perfect new supplier and tariff for you! We can even handle every aspect of your move for your convenience and peace of mind.