Explaining the Energy Price Cap

Jane Parsons and Lynette Williams analyse what the price cap announcement means in practice to consumers

This article was originally published on 29 June 2023. It was last updated on 29 May 2024.

On 24 May Ofgem announced the price cap for the period of 1 July to 30 September 2024. The last two years have seen unprecedented turbulence in the energy landscape in terms of both retail prices, and government intervention to reduce the effects of the cost of living crisis on energy consumers. This means it’s more complex to understand what the price cap means for clients than in previous years and requires some careful unpicking. Let’s look at the headline figures.

From 1 July 2024 ahousehold with typical consumption on a dual electricity and gas bill will pay:

• £1,568 a year if they pay by direct debit
• £1,668 a year if they pay by standard credit (on receipt of bill)
• £1,522 a year if they have a prepayment meter

Depending on payment type, this is a decrease of between £121 and £129 per year for the average consumer. Prices are worked out per unit of energy used. If consumers use more they will pay more. The exact unit rate and standing charge under the price cap — suppliers’ standard variable tariffs — will depend on the region where the consumer lives. Suppliers may also choose to charge less than the price cap.

Although energy prices are decreasing, this is still substantially more than in previous years. The direct debit price cap was £1,042 in winter of 2020/2021. If typical consumption values were still the same, this would mean that the price cap is £526 higher than at that time. A direct comparison however, is more complicated due to the typical domestic values decreasing on 1 October 2023.

From 1 April households benefit from ‘levelisation’ under the price cap. This means the standing charge is the same for direct debit and prepayment meter customers. As the unit rate is less for prepayment meter households, prepayment customers on the price cap will pay less. You can read more about ‘levelisation’ on the Ofgem website.

There are some areas that advisers might have some additional queries over — let’s go through what they might be.

What typical consumption means

The typical domestic consumption values (TDCVs) are industry standard values for the annual gas and electricity usage of a typical domestic consumer. The TDCVs used to calculate the price cap until 31 December 2023 are 12000 kWh for gas, 2900 kWh for electricity and 4200 kWh for Economy 7. From 1 January 2024 new TDCVs apply to the price cap: 11,500 kWh for gas, 2,700 kWh for electricity and 3,900 kWh for Economy 7.

Consumers can find details of their annual consumption on their annual statement. You can read more about average gas and electricity use on the Ofgem website.

How the price cap works

The price cap is based on the costs that Ofgem calculates suppliers need to spend to provide energy to a consumer’s home, including wholesale, network and policy costs. If those costs rise then that is reflected in the cap being increased in the next price cap period. Ofgem used to review the price cap every 6 months which meant new rates took effect on 1 October and 1 April. They now review the price cap every 3 months.

Switching advice

Fixed tariff consumers

Consumers should consider whether it would be worth switching to a standard variable tariff, bearing in mind:

• their unit rates compared to those under the price cap
• any applicable exit fees
• how much time is left on the contract

Consumers will be able to change tariffs, or move to a new supplier 49 days before the end of their fixed term. If their contract has an exit fee, they will not need to pay this.

Consumers may want to consider another fixed term contract — in which case they should follow the same advice as any consumer wanting to switch or fix. You can read more about switching energy supplier or tariff on the Citizens Advice website.

Consumers wanting to switch or fix

In the past, fixed-term tariffs have worked out as a better deal for consumers. As energy wholesale prices have decreased, we are starting to see more fixed tariffs available. Fixed tariffs will help consumers have control over their energy bills. They can be confident that their unit rate and standing charge won’t increase for the duration of their fixed term. However, there is always a risk in fixing an energy tariff and consumers may not benefit over the term of their contract. Equally, if energy wholesale prices increase, the price cap will increase and consumers may have been better off on a fixed tariff. Ultimately, fixing will be a decision that the consumer will need to make based on this information and the tariffs available. You can read more about choosing a tariff that works for you on the Citizens Advice website.

Consumers wanting to compare energy rates should compare tariffs that their current supplier is offering with alternative suppliers. Consumers can compare energy suppliers’ customer service on the Citizens Advice website. Consumers using a price comparison website should use more than one. Consumers should be aware of the risk of scams and contact the supplier directly if in any doubt. They should also ask their supplier if they’re offering any existing consumer only rates as these won’t appear on price comparison sites.

Consumers worried about paying their bill

Anyone worried about paying their bill should contact their supplier in the first instance. They are obliged to discuss payment plans and direct consumers to government and third sector support where available. You can read about what to do if you’re behind on your energy bills on the Citizens Advice website.

There might be reasons if a consumer’s bill has increased. You can read about why a consumer’s bill might have increased on the Citizens Advice website.

Future price cap announcements

Ofgem will announce the price cap for the period 1 October to 31 December 2024 in August. We’ll review the information and then update this article to explain how it’ll affect energy consumers.

Jane Parsons and Lynette Williams are consumer experts in the Expert Advice Team at Citizens Advice.

The information in this article is correct as of the date of publication. Unfortunately, we are unable to respond to comments left on the medium site — please contact expertadvicesupport @citizensadvice.org.uk if you wish to give feedback on an article.