News of the latest Ofgem energy price cap increase has hit and it’s reported that energy prices are set to rise by up to £96 per year for millions of people in the UK. This is an alarming amount, especially if it comes as a surprise. If the energy price cap is news to you, we’ve got everything you need to know right here.
The energy price cap explained
What is it?
The price cap was put in place in 2019 by the government regulator for gas and electricity markets in Great Britain, Ofgem, to keep household costs manageable across the UK. The cap gives an upper limit on what providers are allowed to charge. They review and change this price cap twice a year.
Why is the price cap increasing?
During the spring and summer of 2020, when the pandemic took full hold of the country, the wholesale price of energy decreased to record lows as demand for energy dropped with the warm weather. Ofgem’s latest review revealed that the wholesale costs of energy has increased on a global level as well as demand for energy across the UK skyrocketing due to the extreme wintery weather conditions we’ve been experiencing. The changes to the price cap will take effect from April 2021.
Who does the price cap affect?
Default tariffs: These may also be known as standard variable tariffs. They are a basic form of tariff and generally the least cost-effective because they go up or down depending on the wholesale energy prices. You may be on a variable tariff by default if your fixed tariff term has ended and you haven’t switched provider, or if you moved home and not agreed a new tariff with the current provider. There are currently around 11 million households on this type of tariff, so it’s worth checking which deal you’re on!
Pre-payment meters: These meters allow you to pay for your energy before you use it. You need to use a pre-payment card and key to top up your homes supply of gas and electricity.
Energy customers on a fixed tariff, meaning they pay the same amount agreed by their supplier every month, are unaffected by the energy cap increase.
What can you do to avoid this?
The best thing you can do before the changes come in to play, is to shop around and switch providers! It can feel risky to step away from what you know but trust us, you could save a noticeable amount of money. You can read our blog on why you should change providers and to see how much you could save, here.
You don’t even need to do it yourself, the bill switching tool in our app can handle it all for you. With some key information from you, we can show you a quick quote that highlights how much you could be saving by switching supplier. Once you’ve decided on the right provider for you, you can switch within the app and your new supplier will handle all the admin! You can read more about our bill switching tool here.