Energy price cap will come into force in the New Year

Ofgem has confirmed the final level of the cap at £1,137 per year for a typical dual fuel customer

  • Around 11 million consumers are expected to save an average of £76 a year
  • Customers on the most expensive poor value default tariffs could save as much as £120 annually
  • The level of the cap will be updated in April and October every year

The energy price cap that is expected to save 11 million consumers an average of around £76 a year will come into force in the New Year.

Ofgem said the price protection could also help customers on the most expensive poor value default tariffs save as much as £120 a year.

The final level of the price cap – which will be updated in April and October every year – has been set at £1,137 per year for a typical dual fuel customer paying by direct debit.

However, the savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity and how they pay for their energy. In total, the price cap is estimated to save consumers a total of £1 billion.

Wholesale costs have risen significantly over the last year and if this trend continues, it is likely the regulator will announce an increase in the level of the cap in February to take effect in April.

Dermot Nolan, Chief Executive of Ofgem said: “From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity.

“The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes. Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible.”

Energy and Clean Growth Minister Claire Perry added loyal energy customers “have continued to be hit by unjustified price rises” on their already rip-off tariffs.

She said: “This government has delivered on time its promise to protect 11 million households from poor value deals this winter. Today’s final cap level brings greater fairness to energy prices and puts consumers at the heart of the energy market.”

 

Additional information

Ofgem said it made minor adjustments to the level of the price cap to better reflect the real costs of supplying default tariff consumers with gas and electricity.

This resulted in an overall increase in the level of the cap of £1.27p compared to what was set out in the statutory consultation – the adjustments made are to more accurately reflect the cost of supplying gas and electricity.

These include (with figures rounded):

  • An increase of £6 to more accurately reflect the cost of replacing traditional meters before the end of their asset lives with smart meters and £3 for minor methodology corrections
  • An increase of £2 to more accurately reflect the cost of wholesale gas that is lost in the course of being delivered to people’s homes
  • A reduction of £11 to more accurately reflect the lower costs to suppliers from direct debit customers paying for their energy in advance and the additional cost of serving standard credit customers who pay by cash or cheque

The price cap level of £1,137 represents a dual fuel customer paying by direct debit who uses a typical amount of gas and electricity, using a measure called Typical Domestic Consumption Values (TDCVs) for a medium gas user and medium electricity user (profile class 1).

The per unit level of the price cap for a typical customer paying by direct debit will be 17p per kWh for electricity-only customers and 4p per kWh for gas-only customers. Standing charges are capped at £83 for electricity-only customers, £94 for gas-only customers and £177 for dual-fuel customers.

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