Energy Price Cap

What Is The Current Energy Price Cap? 

The current energy price cap is set at £1,717 per year for a typical UK household. This price is in effect between October and December 2024. Ofgem has announced this is a 10% increase in the price cap. 

 

It has been confirmed that the new energy price cap from January to March 2025 will increase by 1.2%. This means that 2025 will start with the cap at £1,738 per year for a typical UK household. It may be worth comparing energy prices to see if you can save money against this cap. 

Early predictions for April 2025 onwards seem to be trending towards a slight increase but things could change as this is considered a weak prediction. 

The energy price cap is the maximum amount suppliers can charge for gas and electricity. Remember that the price cap is set on unit prices, meaning you pay more if you use more. Those seeking security around the price they pay are choosing to get a fixed-rate deal now.

So, what does this mean for the switching market for home and business energy?

What Does This Mean For Energy Switching? 

Energy switching is well and truly back. There are deals for business energy and some great options for households too. It is arguably one of the best times in recent years to grab a fixed-rate deal, but each circumstance is different. Either way, there’s no harm comparing energy tariffs now in case you can get a better deal than you’re currently on. 

Are Energy Prices Increasing? 

According to analysts at Cornwall Insights, this isn't unexpected and is a direct result of the fluctuations in wholesale energy prices. Dr Craig Lowry at the group has highlighted that we cannot assume that prices will continue to fall, and higher prices may become the new “normal”. 

Wholesale energy prices may be predicted to increase slightly at the beginning of 2025, but then it is expected to fall slightly towards the back end of the year. UK Parliment state that the future energy price cap remains uncertain and there is no guarantee that prices will fall at this time.  

 

Interested in finding out what you could be paying? Take a look at our live online prices to see if we can help you grab a better deal. 

 

What Does This Mean For Business Energy?

There is no price cap for business energy customers, however, prices are competitive for commercial energy. Many business owners are securing great business energy rates and locking in a great deal to avoid any future price fluctuation.

Energy Price Cap (p/per kWh)

How has the energy price cap unit rate changed?

Despite the 10% increase in price cap, wholesale rates have remained stable. Although we're paying more than we used to a few years back, we can expect prices to only fluctuate a little in comparison to the highs seen in the energy crisis. 

The price cap is managed by the energy regulator Ofgem to ensure that suppliers charge fairly by wholesale costs. The price cap is on the unit rate per kWh used and your bill will be based on how much gas & electricity you use.

 

Remember this is the maximum tariff you should be paying - you can compare energy deals to see if you can get an even cheaper unit rate. 

How Does Ofgem Calculate The Price Cap? 

As this is putting a cap on energy supplier profits, calculating the price cap has a variety of factors that must be considered. Ofgem has released some information on how they set the price cap:

 

Wholesale energy costs - the baseline consideration is how much the supplier pays for the energy it later provides UK households

 

Network upkeep costs - the costs relating to the maintenance of energy buildings and maintaining the network that delivers the energy to each home. This includes any operating costs

 

Government policies - any government schemes are considered when applying the price cap

 

5% VAT is added

 

Energy Price Cap Costs 

Other costs go into the price cap, such as adding a direct debit uplift to ensure that customers who pay by pre-payment do not pay more than those who pay by direct debit.

 

The full breakdown of energy price cap cost changes for the October to December 2024 energy price cap as provided by Ofgem for direct debit customers is as follows:

 

- Wholesale costs: £736 (+£123)

- Network costs: £370 (+£7)

- Adjustment allowance: £28 (+£0)

- Operating costs: £232 (+£9)

- Government policy/schemes: £187 (-£1)

- Earnings before interest & taxes (EBIT): £43 (+£4)

- Headroom for uncertain costs: £18 (+£2)

- Payment uplift: £16 (+£1)

- Levelisation allowance: £7 (-£3)

- VAT at 5%: £82 (+£7) 

- Overall increase: +£149

 

Source: Ofgem

 

Can I Switch Energy Suppliers In 2024? 

Energy suppliers have started offering fixed-rate deals. This means you might be able to lock in a great deal in 2024. 

Ofgem's Energy Price Cap History 

It’s fair to say the energy price cap has seen its fair amount of fluctuation. The table below looks at each time the cap was set over the last few years, for a typical medium household paying by direct debit.

 

 

Source: Ofgem data 2024.

When Was The Energy Price Cap Introduced? 

The first price cap for default energy tariffs, or standard variable tariffs (SVTs) as they’re often referred to, was established on 1 January 2019 by Ofgem - the Office of Gas and Electricity Markets.

 

Since 1 April 2017, there has also been a price cap protecting customers on prepayment meter tariffs, which covers around 4 million energy consumers.

 

Why Was The Price Cap Introduced? 

The aim of establishing the default tariff price cap was to provide protection to some 11 million energy customers across the UK, ensuring they paid a fair price for the energy they used to power their homes.

 

The price cap is set so energy suppliers can’t charge their customers whatever they want per kWh of energy they use, while also reflecting on the wholesale energy market so suppliers aren’t buying energy at a more expensive rate than they’re selling at.

 

How Often Does The Energy Price Cap Change? 

Ofgem reviews the energy price cap every three months. This has changed due to fluctuating energy prices as they only used to review it twice a year.

 

Deep Dive Into The Price Cap History

January 2019

When the price cap was first established suppliers could set the rate of their standard variable tariffs as they wished. The average annual price of an SVT was set to £1,137, which worked out at £94.75 on average per month. However, this was then adjusted in February 2019 to £1,254 - a monthly SVT average of £104.50.

 

August 2019

The next price cap announcement saw the annual SVT average drop to £1,179 with a monthly average cost of £98.25.

 

February 2020

It dropped again in February 2020 to £1,162 and a monthly average of £96.83.

 

Ofgem changes average usage

 

Between the February and August price cap announcements, Ofgem changed how they calculated the price cap by lowering the household average energy usage of electricity to 2,900 kWh from 3,100 kWh.

 

August 2020

Due to wholesale energy prices plummeting from lack of demand during the first Covid-19 lockdown, the price cap dropped to its lowest-ever recorded price of £1,042 with a monthly average of £86.83.

 

February 2021

As the lock down began to ease and people started to venture out, wholesale energy prices started to climb, which caused the price cap announcement of February 2021 to increase by £96 to £1,138 and a monthly average of £94.83.

 

August 2021

With wholesale prices still climbing, the price cap rose again to £1,277 with a monthly SVT average of £139 - the highest price cap to date.

 

April 2022 

Wholesale energy prices continued to surge to £1,971 with a monthly average cost of £164,25.

 

October 2022 

Wholesale prices continued to rise further to a staggering £3,549, averaging a monthly cost of £295.75. The government introduced the Energy Price Guarantee to bridge the gap of rapidly increasing energy costs. This was set at £2,500 per year for typical household usage.

 

April 2023 

The Energy Price Guarantee was scheduled to end. This was extended until July 2023. It was extended as predictions had the price cap increasing hitting £3,280 for typical households.

 

July 2023 

Energy switching coming back? Yes! Ofgem announces the price cap drops to £2,074 and becomes active once again under the temporary price guarantee.

 

October 2023 

Ofgem lowers the price cap drops to £1,923. 

 

January 2024

For January to March 2024, Ofgem the price cap for a typical gas and electricity using customer that pays by direct debt is £1928, an increase of 5%.

 

April 2024

For April to June 2024, the Ofgem price cap for a typical customer that uses gas and electricity paying by direct debit lowers to £1690, a 12% decrease on the previous quarter.