Energy Price Cap – where do things stand now?
Last Updated : 16 January 2020
So far we have had 3 iterations of the Energy Price Cap.
From 1 January 2019 customers on Standard Variable Tariffs (SVTs) and other default tariffs saw their average energy bills cut by £75, to £1,136, for a dual fuel customer with average energy usage.
This cut was relatively short-lived as the cap was then increased by £117 (10.3%) to £1,254 from 1 April 2019.
1 October 2019 saw the third iteration of the cap cut bills by £75 (3.4%) to £1,179.
So how well has the energy price cap performed overall?
So far, we’ve had 2 cuts totaling £159 with a massive hike of £117 in between. On balance this leaves Standard Variable tariffs £43 lower than they were before the price cap came into effect.
However, the cheapest deals over the same period have fallen by £79. This means that the price cap hasn’t even managed to keep up with the competitive energy market. Had the price cap not been implemented it is quite feasible that competition would have driven down the price of SVTs by more than the energy price cap did.
Energy consumers worse off with the energy cap
Remember, the energy price cap was supposed to reduce the spread between poor value Standard Variable Tariffs and the cheapest energy deals so that those customers who, for whatever reason, couldn’t or wouldn’t switch would end up overpaying by less. The reality is that the spread between SVTs and the cheapest deals has actually increased. This means that price cap protected customers are overpaying by even more than they did without the cap. In terms of its main fundamental objective, the energy price cap has been an abject failure.
Here’s a word from our Founder Joe Malinowski;
“11 million customers on standard default tariffs have already each lost out by £335 since the cap came into effect. They will each continue to lose an additional £30 a month for a long as they stay on a default tariff under the false pretence that they are getting a fair price for their energy.”
“As always it is the savvy switchers who reap the rewards from the competitive market pocketing savings of £350 compared to those on Standard Default Tariffs. For those keen on getting their finances under control in 2020, it’s time to ditch the energy price cap and switch to a competitive tariff.”
To compare and switch just pop your postcode into the box below.
What is the Energy Price Cap?
The Energy Price Cap is a cap on the rates that licensed energy suppliers can charge to customers who are on either Standard Variable Tariffs or other Default tariffs.
The energy price cap is a cap on the per unit cost of gas and electricity, with standing charges taken into account.
It is NOT a cap on your energy bills which will still rise or fall in line with your energy consumption.
It is also NOT a cap in the standard sense that sets a price level above which prices can’t rise.
All this cap does is set a level above which default tariff rates can’t rise. These levels are set for periods of 6 months at a time.
Confused? We sympathise.
Read on and we’ll do our best to explain.
What are Standard Variable Tariffs?
Standard Variable Tariffs, often also abbreviated as SVTs, are tariffs which customers who have never switched are placed on. They are also the tariff onto which a customer who, having switched and come to their tariff end date, will normally be placed onto unless they make a proactive decision to move to a different energy tariff or to switch energy supplier. Before the Price Cap came into effect, these tariffs where usually the energy supplier’s most expensive tariff meaning that customer who didn’t switch were effectively getting penalised with “rip-off rates” . Because of widespread disengagement in the energy market, the majority of customers (current estimates show over 50%) are still on these expensive tariffs.
What are Default Tariffs?
Default tariffs are other tariffs that customers find themselves on which they have not proactively signed up to. So, for example, if your tariff ended and you never made a new tariff choice, either by switching or moving to a new tariff with your current energy supplier, then your supplier will place you onto a deal not of your choosing. Typically, this will be their Standard Variable Tariff (see above). But it could be a different energy tariff. Default Tariff cover all these other tariffs that fall into this general description.
When did the Energy Price Cap come into effect?
The cap was introduced by an act of Parliament called The Domestic Gas and Electricity (Tariff Cap) Act which came into force on 19 July 2018
The first level of the Price Cap was set on 6 November 2018. It runs from 1 January 2019 through to 31 March 2019.
The second level of the energy price cap was set on 7 February 2019. It runs from 1 April 2019 through to 30 September 2019.
The third level of the energy price cap was set on 7 August 2019. It runs from 1 October 2019 through to 31 March 2020.
The fourth level of the cap will be announced in February 2020. It will run from 1 April 2020 through to 30 September 2020.
What is the level of the energy price cap?
You can find current and historic levels of the energy price cap in the tables at the bottom of this page.
How much will the energy price cap save me?
Well that very much depends on what you are comparing it with.
If you compare it to where Standard Variable tariffs would have been without the cap, then the Energy Price Cap was expected to save around £76 a year. And was it the key word here. We will park that here and get back to it shortly.
However, if you compare it with other competitive energy deals in the market then, then you are still paying between £200 and £400 a year over the odds.
The figures quoted above are for a dual fuel customer with a standard electricity meter with average energy usage. The exact amount will depend on variables such as your current energy supplier and tariff, how you pay your bills and how much energy you use.
So, in summary, although energy consumers were supposed to be getting a better deal than if you did nothing, the cap was never designed to get you a half decent deal.
That is how it was supposed to work. A slightly better deal for those that don’t switch but nowhere near a great deal. However the outcome to date has been a shocker As this graph of energy savings shows, consumers are worse off under the price cap than they were without it.
Once the energy price cap is set is that it?
Afraid not. Energy supply is a volatile commodity based business – costs can fluctuate wildly in both directions. To allow for this the cap will be reviewed at regular intervals to allow for changes in suppliers’ costs such as wholesale energy prices, network charges, and the costs associated with funding government policies.
How often will the energy price cap be reviewed?
The price cap will be reviewed twice annually and updated on 1 April and 1 October each year. The updated cap level will be announced 2 months before it comes into force (in February and August of each year).
When will the energy price cap end?
The cap is supposed to be temporary. It will initially run until 2020.
Government can extend the cap for additional periods of 12 months at a time. Under current legislation, Government can extend the cap only three times so the cap must end by 2023. But of course that legislation could be amended.
In deciding whether to extend the cap the relevant Secretary of State will take into consideration a review and report, undertaken by Ofgem in 2020, as to “whether the conditions are in place for effective competition”. If the cap is extended then Ofgem would need to undertake further reviews in 2021 and 2022.
On what basis will Ofgem decide whether to recommend removal of the cap? Who knows? Ofgem have developed a framework for how they will evaluate the prospect of effective competition, which is nice to know but tells us very little at this point. We expect it will ultimately be a purely political decision.
However, it is telling that Ofgem has openly admitted that it expects the cap will reduce the level of switching meaning that, at least on this one measure, the “effective competition” condition will have worsened.
“We expect that under a cap, switching levels would have been lower, by up to 50%.”
Ofgem, Statutory Consultation – Default tariff cap – 6 September 2018
How has the energy price cap level been set?
The cap will be set based upon using a bottom-up assessment of suppliers’ costs. Ofgem has set the cap with reference to the third lowest operating cost per customer amongst the ten large and medium energy suppliers that they analysed, with an additional (£5 per dual fuel account) efficiency factor to increase their incentives to reduce their average costs. (Ofgem’s assessment of efficient costs).
On top of their “efficient cost” base, Ofgem have allowed a normal rate of return before interest and tax of 1.9% (around half the current level).
Ofgem have the added a further £12 per dual fuel customer of “headroom” allowance to help energy suppliers manage additional costs of uncertainty.
What that basically means is that of the largest players at least 7 will need to urgently cut into their cost base to avoid running into losses. And for those suppliers whose costs are more than 2% above the efficient level, they are going to be running into losses sometime very soon.
Does the energy price cap mean the end of No Standing Charge tariffs?
Yes, it pretty much kills them off. For default tariffs in any case.
The energy price cap has separate caps for standing charges and units rate components.
Suppliers have some flexibility in how they choose to price but the price cap will make it extremely difficult from a profit perspective to reduce the standing charge component to zero. Some customers with low energy usage will actually see their energy bills increase because the energy price cap.
I receive the Warm Home Discount. How will the default price cap affect me?
Customers on SVTs and default tariffs who receive the Warm Home Discount are currently covered by the Safeguard tariff.
Customers currently receiving Warm Home Discount and on the existing Safeguard tariff, will have their prices capped at the default cap rate for direct debit customers.
SafeGuard tariffs were introduced in April 2018 as a temporary measure and are due to be replaced either by this price cap or other safeguard tariff.
I have a prepayment meter. How will the default price cap affect me?
If you have a prepayment meter then you are already covered by the Competition and Markets Authority’s (CMA) Prepayment Price Cap. As such the default tariff cap does not affect you.
The exception is you if have a SMETS2 smart meter operating in prepayment mode. For some bizarre reason you currently do not get protection from the Prepayment Price Cap. Don’t ask us why, we don’t know. In this case you will be put onto the default cap rate for direct debit customers.
Is there anything else that I need to know about the energy price cap?
Well if that wasn’t already complicated enough, British Gas has decided to mount a legal challenge to the energy price cap, arguing it has not been calculated fairly by Ofgem. This legal challenge, referred to as a judicial review, will take a while to work through the courts. However, if British Gas is successful and wins its case it will likely be given the right to make a claim for damages for any amount by which the cap was set too low. This could mean recovering back revenues from customers. This is another reason why you may not want to hang around on a Standard Variable Rate or default tariff.
Do you have a handy table showing me the level of the energy price cap by fuel and payment method?
Sure we do. They are at the bottom of the page.
If my energy prices are being capped why should I still switch?
The cap was intended to help you get a saving of £75 give or take. The reality is that not only has it not done that, it has ended with you over-paying by more.
If you want to pick up the really juicy savings, another £200 to £350 on top, then you need to find those precious 5-10 minutes to do a comparison and switch energy supplier.
The really important thing is to NOT let yourself get lulled into a false sense of security – thinking that the cap will get you a great deal. It won’t. If you fall into that trap you will simply end up overpaying year after year after year.
And remember, the cap DOES NOT mean that your prices will fall and stay low. They can and will rise and they are NEVER low.
If I want to switch to a cheaper energy deal what should I do?
Easy. Here are 2 quick and simple ways in which you can do it. Just pick the one that suits you best.Option 1. See how your tariff compares before applying. Click here...
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Anf finally some data
Price Cap Levels
Energy Price Cap – 1 April 2019 – 30 September 2019
|Energy Price Cap (Default Tariff Cap) v2|
|7 Feb 2019|
1 Apr 2019
30 Sep 2019
|Fuel||Direct Debit Bill (£)||Change (£/%)||Standard Credit Bill (£)||Change
|Electricity (standard meter)||661||+66|
|Dual Fuel (standard meter)||1,254||+117|
|Electricity (economy 7 meter)||815||+84|
|Dual Fuel (economy 7 meter)||1,408||+135|
|Source; energyscanner, Ofgem|
Energy Price Cap – 1 January 2019 – 31 March 2019
|Energy Price Cap (Default Tariff Cap) v1|
|6 Nov 2018|
1 Jan 2019
31 Mar 2019
|Fuel||Direct Debit Bill|
|Standard Credit Bill
|Electricity (standard meter)||595||639|
|Dual Fuel (standard meter)||1,137||1,221|
|Electricity (economy 7 meter)||731||781
|Dual Fuel (economy 7 meter)||1,273||1,363|
|Source; energyscanner, Ofgem|