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Fuel Rights Handbook 21st edition

Price caps

• Default price cap
• Prepayment meter price cap

Price caps set the maximum price per kWH suppliers can charge for electricity and gas on standard variable tariffs (SVT) and default tariffs.1Domestic Gas and Electricity (Tariff Cap) Act 2018 This is the unit which your bill is calculated from. Ofgem sets the price cap, using a method set by the Competition and Markets Authority. There are regional differences in the cap to reflect regional variation in the costs of distribution and supply. To ensure prices reflect changes in the cost of supplying energy, Ofgem reviews the caps quarterly and these revisions take effect in January, April, August and October.

The price cap does not affect you if you are on a fixed-term tariff or if you have a standard variable green energy tariff.

Note: being on a price-capped tariff does not protect you from bill increases as price caps are not a limit on the total amount of your bill – how much you pay still depends on how much energy you use, whether you have both gas and electricity, where you live, your current deal and how you pay.

There are two energy price caps: the default price cap and the prepayment meter price cap.

 

1     Domestic Gas and Electricity (Tariff Cap) Act 2018 »

Default price cap

Since 1 January 2019, a price cap has been in place for SVTs and default tariffs. If you have never switched tariff or supplier, or if you took no action when your last fixed deal ended, you are likely to be on one of these tariffs. SVT or defaults tariffs are typically substantially more expensive than the cheapest deals on the market. The cap aims to ensure that customers pay a ’fair’ price for energy with any price changes reflecting genuine changes in energy costs experienced by suppliers.

This price cap is for people paying by direct debit or by standard credit. Those on standard credit typically pay 6 per cent more than those paying by direct debit. See below if you have a prepayment meter.

If you are on a fixed-term contract, your prices are fixed and are not covered by the cap. However, when your contract ends, you will automatically be moved to a default tariff if you do not have a new contract in place or switch supplier.

Prepayment meter price cap

To prevent prepayment meter customers from being over-charged, Ofgem introduced a price cap in April 2017. The unit charges within the prepayment meter price cap from 1 July 2023 was equalised with those paying by direct debit. The standing charges continue to be higher for prepayment meter households as these have been determined by the regulator, Ofgem, to merit additional costs of providing and supporting prepayment amongst energy suppliers. The UK Government has instructed Ofgem to review the costs of standing charges by April 2024.

As with the other cap, the level may increase and your bills may go up.