What is the energy price cap and how does it work?
Plus, we've explained why you might pay more
ENERGY bills have fallen by £122 a year for millions of households from July 1st 2024
But what exactly is the energy price cap, how does it work and how many people does it impact?
We have explained everything you need to know.
What is the energy price cap?
The energy price cap was first brought in on January 1, 2019, by the regulator Ofgem.
The cap was introduced with the aim of preventing the millions of households then on expensive tariffs from being over charged.
As it stands, the price cap is updated every quarter or three months.
The price cap is currently £1,568, the lowest figure in two years.
Bear in mind, the £1,568 figure is calculated based on what Ofgem thinks an average household will use.
This is calculated assuming that a typical household uses 2,700 kWh of electricity and 11,500 kWh of gas over a 12-month period.
As of this month, the price of gas will be cut from 6.04p per kWh to 5.48p.
Meanwhile, the unit rate for electricity will drop from 24.50p per kWh to 22.36p, Ofgem said.
However, the daily standing charge for electricity will go from 53.35p to 60.10p while for gas it will go from 29.60p to 31.43p.
However it is important to know if you pay more you will be charged more.
The price cap affects roughly 29million customers, according to Ofgem. It does not impact those on a fixed-term deal.
Do note Ofgem has also given itself the power to change the cap at points during ”exceptional circumstances”.
The cap is calculated based on the wholesale price of gas and electricity.
It also includes allowances for tax, charges paid to the energy networks, green levies and social payments.
The UK imports more than two-thirds of its gas which is subject to global price swings, making prices more volatile and likely to rise and fall.
How do I calculate my energy bill?
BELOW we reveal how you can calculate your own energy bill.
To calculate how much you pay for your energy bill, you must find out your unit rate for gas and electricity and the standing charge for each fuel type.
The unit rate will usually be shown on your bill in p/kWh.The standing charge is a daily charge that is paid 365 days of the year – irrespective of whether or not you use any gas or electricity.
You will then need to note down your own annual energy usage from a previous bill.
Once you have these details, you can work out your gas and electricity costs separately.
Multiply your usage in kWh by the unit rate cost in p/kWh for the corresponding fuel type – this will give you your usage costs.
You’ll then need to multiply each standing charge by 365 and add this figure to the totals for your usage – this will then give you your annual costs.
Divide this figure by 12, and you’ll be able to determine how much you should expect to pay each month from April 1.
How does the energy price cap work?
The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.
It ensures that prices for people on default energy tariffs are fair and that they reflect the cost of energy.
That means despite the energy price cap being £1,568, you might pay more or less than this amount, depending on your usage.
The way you pay for your energy, where you live, your meter type, and how much you use will all affect your energy bill.
For example, households which pay using direct debit are around £100 better off a year than those who pay on receipt of their bills.
Ofgem also sets a maximum daily standing charge which is what households have to pay to have their home connected to the National Grid.
The dates when the levels will be announced next are as follows, according to the regulator.
- 1 October to 31 December 2024 – announced by August 27, 2024
- 1 January to 31 March 2025 – announced by November 27, 2024
- 1 April 2025 – 30 June 2025 – announced by February 25, 2025
That means prices don’t actually change on the date a new price cap is announced, but a few weeks after.
Since the launch of the price cap, the Government said it would allow it to be extended beyond 2024 if needed.
What energy bill help is available?
THERE'S a number of different ways to get help paying your energy bills if you're struggling to get by.
If you fall into debt, you can always approach your supplier to see if they can put you on a repayment plan before putting you on a prepayment meter.
This involves paying off what you owe in instalments over a set period.
If your supplier offers you a repayment plan you don’t think you can afford, speak to them again to see if you can negotiate a better deal.
Several energy firms have grant schemes available to customers struggling to cover their bills.
But eligibility criteria varies depending on the supplier and the amount you can get depends on your financial circumstances.
For example, British Gas or Scottish Gas customers struggling to pay their energy bills can get grants worth up to £1,500.
British Gas also offers help via its British Gas Energy Trust and Individuals Family Fund.
You don’t need to be a British Gas customer to apply for the second fund.
EDF, E.ON, Octopus Energy and Scottish Power all offer grants to struggling customers too.
Thousands of vulnerable households are missing out on extra help and protections by not signing up to the Priority Services Register (PSR).
The service helps support vulnerable households, such as those who are elderly or ill, and some of the perks include being given advance warning of blackouts, free gas safety checks and extra support if you’re struggling.
Get in touch with your energy firm to see if you can apply.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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