I wish I knew what the energy price cap was, but I’m too embarrassed to ask

In the UK, the energy price cap is the maximum price that energy suppliers can charge customers who are on their standard (default) tariffs. The cap was introduced in January 2019 and is set by energy regulator Ofgem. The purpose is, in effect, to prevent gas and electricity providers from continually raising energy prices for apathetic or loyal long-term customers in order to subsidise the cost of attracting new customers with cheap but temporary energy deals.

The price cap is reviewed twice a year. Ofgem sets it by looking at energy prices in the wholesale markets, which reflect the cost of electricity and gas to suppliers. It is currently set at £1,138 per year. Those who pay by cash or cheque can be charged £93 more to cover “the higher cost for suppliers to serve them”, while those who pay by pre-payment meter pay £32 extra. The cap will rise to £1,277 a year from October, and appears likely to rise again in April, assuming that energy costs remain at current levels (this is worth taking into account if you are looking at switching provider – comparison sites usually won’t take into account future changes in the cap when calculating potential savings).

The term “price cap” sometimes causes confusion,

particularly as it is usually cited in terms of an annual cost. Note however that this annual rate “is based on a household with typical consumption on a dual electricity and gas bill paying by direct debit,” says Ofgem. It is not a cap on actual annual costs – if you use twice as much energy as the average household, then of course you will pay twice as much in energy costs.

The cap instead sets a limit on the rate paid for each unit of gas or electricity. So for example, from October, the limit per kWh for electricity users will rise to 21p, and for gas users, to 4p (including standing charges). These figures are for payment by direct debit, and are rounded to the nearest penny.