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Energy Price Cap

Posted by PFP Energy

The energy price cap was introduced by the government and Ofgem to prevent suppliers from overcharging customers who are on standard/variable tariffs.

What is the price cap?

The cap applies to the unit rate and standing charges if you are on a standard tariff. You may have seen media reports that the cap will be ‘set’ at £1137 a year, implying that this is the maximum someone can pay for their energy, this figure is based upon the ‘average’ user. The cap is subject to your usage, the higher your usage the higher the cap will be, the lower your usage the lower your cap will be, and the price cap is estimated to reduce bills by around 10% over the course of the year.

Does the cap apply to me?

The cap will apply to you if you are on a default energy tariff. You may be on one of these tariffs if your old tariff has now expired. There are also other reasons that may have caused you to move onto a default energy tariff, such as, if you haven’t selected a fixed rate tariff or if you may have moved into a new property and not had time to review your energy supply yet.

If you receive the warm home discount or have a pre-payment meter then you will benefit from the price cap.

The cap will not apply to you if you are on a fixed rate tariff or have signed up to a renewable energy tariff.

Will the cap change?

The cap is subject to change based upon the prices of the wholesale energy market, if the market prices rise and the cost to the supplier rises then the cap will rise to account for the increase, this will be monitored by Ofgem and they will set the cap at what they see fit. It has been recently announced that the cap will increase due to a rise in wholesale energy costs with the estimated cost for the average user increasing by around 10%.

Is the price cap permanent?

The cap is due to be in place until the end of 2020, although Ofgem may extend this to the end of 2023.