What is the energy price cap?
For customers on variable energy tariffs, the energy price cap is a limit on the cost of a unit of energy. It is a protective measure for those who are not on a fixed tariff, and it is overseen by energy watchdog Ofgem who determine how much energy suppliers, such as Octopus, can charge.
The price cap was introduced in 2019 to keep energy at a fair price for those on a variable tariff. Since we entered the energy crisis, the fair price needed to be reviewed and more help has been provided for those on variable tariffs. This led the government to introduce the Energy Price Guarantee (EPG).
So… what is the Energy Price Guarantee (EPG)?
From 1 October 2022, the EPG replaced Ofgem’s price cap until April 2023. The price cap remains in place, however, as energy prices increase, the government pay for the excess costs between the price cap and how much you pay, the EPG. This means that if the price of the cap is very high (which it currently is), then the government subsidises it.
If the price cap drops lower than the EPG, we’ll pay the price cap instead. The EPG is a set as a ‘protective measure’.
How much will I pay?
The EPG caps the average energy unit rates between October 2022 and April 2023. If you are on a variable tariff and paying by direct debit in England, Scotland or Wales, then this averages to around:
- Electricity: 34p per kWh + a standing charge of 46p per day (Until 31 March 2023)
- Gas: 10.3p per kWh + a standing charge of 28p per day (Until 31 March 2023 )
The government has announced that this should cost a typical household of medium energy use £2,500 per year. However, every household has different energy demands, and it is difficult to define the average energy use.
Be aware – the cost per kWh of energy is capped, not the price of your bill, how much you pay depends on how much you use
As of April 2023, the price cap and EPG are increasing. What does this mean?
On Monday, Ofgem announced a new price cap for April – July 2023, increasing to £3,280 a year for a typical household. However, this will not directly affect household bills as consumers still pay the EPG.
The government have announced that the EPG is increasing from £2,500 to £3,000 per year from April.
Due to the increased EPG, it is expected that household bills will increase by 20% from April – July, to an average of £3,000 per year.
When will prices fall again?
Research from Cornwall Insight has revealed that the price cap should fall to £2,153 in July and should stay that way for the rest of the year.
As the predicted price cap would be lower than the EPG, the government’s increased EPG of £3,000 would be futile and households would pay the price cap instead.
We don’t truly know what we will be paying over the Summer months, and we can all agree that the top-down control of energy prices can seem bewildering. The energy crisis and the cost of living crisis are ongoing and the markets are unpredictable, but the researched predictions for energy bills are improving – that in itself is a dose of positivity.
How do I work out how much I’m paying?
Understandably, you may want to work out a clear figure of how much you will be paying for gas and electricity per year.
To find out how much your bills will cost you, we have included the calculations in the image to the right so that you can draw a more practical estimate based on your current usage.
To find your annual use in kWh for gas and electricity, you should be able to find this figure on your energy bills, on your provider’s website, or you can estimate it based on your meter readings.
The calculation also helps to give you an idea of what the government means when they talk about energy costs being capped at around £2500. This represents the average household and their energy use falling just below this bracket—if they were to use more energy, the number could surpass £2500.
What do I need to do to make sure I’m getting the EPG?
Nothing! Your supplier should have let you know by now about your energy prices, but the caps will apply to everyone.
How does this change depending on the tariff that I’m on?
The EPG will automatically be applied to your bills. The prices that you pay vary depending on where you live and how you pay.
The EPG will automatically be applied to your bills. If your fixed tariff rates are higher than the average price per unit of energy, then your unit prices will be decreased to match the EPG.
There is a maximum reduction of 17p per kWh for electricity and 4.2p per kWh for gas, your bills should drop accordingly but if you are on a high fixed rate then your bill may be a little higher than the EPG.
The EPG will automatically be applied to your bills.
The EPG will cap the rates for each unit of energy. When you pay, it will automatically be applied to your bills.
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