What Does The Energy Price Cap Mean For You And Your Bills?

For those on direct debits, the average household’s yearly bill will rise from £1,971 to £3,549 from October.
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Anxiety levels are rising once more as Ofgem has confirmed an 80% rise in the energy price cap from October, leaving many households paying thousands more per year for their energy bills.

The cap will come into effect for around 24 million households in England, Scotland and Wales on default energy tariffs on October 1, and will remain in place until December 31, when it will be adjusted again.

Annual bills are expected to hit an eye-watering £3,549 on average from October.

Here’s what we know so far.

What is an energy price cap?

The energy price cap is in place to protect customers from being overcharged. It was introduced by regulator Ofgem in 2019 following worries that people were paying through the nose for their energy.

The price cap basically sets the maximum amount that energy suppliers can charge for each unit of energy, according to the Energy Saving Trust. The £3,549 figure that has been mentioned in news reports is for an average home, so even with a price cap in play, you might pay a bit more if you have a larger-than-average household or use up more energy.

Historically, the energy price cap was reviewed every six months, however, this year Ofgem decided to review the price cap every three months to help prevent energy companies from going bust. The idea being that energy companies can adjust everyone’s bills a lot more quickly if wholesale costs rise – and they are rising thanks to a combination of factors including Russia slowly switching off gas supplies to Europe and the world ‘unlocking’ from Covid, meaning demand has surged and supply hasn’t been able to keep up.

How will your bills go up

Money Saving Expert’s Martin Lewis explained that those on direct debits will see the energy price cap go up to 80% overall.

He broke down the adjustments in terms of standing charges and unit rates.

A standing charge is a fixed cost that you have to pay regardless of the energy you use. This charge is used to cover the costs that energy providers incur to supply households with gas and electricity, according to energy helpline.

The unit rate, on the other hand, is the price-per-unit of the gas and electricity you use. This is paid on top of the standing charge.

Lewis explained that under the new price cap increase, electricity’s daily standing charge will rise from 45.3p to 46.3p. Meanwhile the unit rate per kWh (kilowatt per hour) will rise from 28.8p to 51.8p.

For gas, the daily standing charge was 27.2p, which is rising to 28.4p. The unit rate per kWh was 7.4p, and will rise to 14.8p.

These calculations are averages, so might vary depending on where you live, he added.

The long and short of it is that even if you decide to not use any energy whatsoever, you’ll still be landed with a £273 per year standing charge bill.

The amount your bills will go up depends on your location, but also how you pay for your energy.

For families on direct debits, the average household’s yearly bill will rise from £1,971 to £3,549 from October.

When you break that down on a monthly basis, the average direct debit will increase by about £133 per month for a typical three bedroom home.

The 4.5 million pre-payment meter customers, who pay for gas and electricity before they use it on a pay-as-you-go basis, will see an even more punishing increase, with their average annual bill set to go up to £3,608 from £2,017.

Those who pay on receipt of a bill – where energy providers send them a bill every three months and they then pay – will see their average annual bills go from £2,100 to £3,764.

The energy price cap doesn’t apply to you if you’re on a fixed-term energy tariff or you’re on a standard variable green energy tariff, which Ofgem has exempted from the cap.

Ofgem’s chief executive Jonathan Brearley warned of the hardship energy prices will cause this winter and urged the incoming Prime Minister and new cabinet “to provide an additional and urgent response to continued surging energy prices”.

Money Saving Expert has released an energy bill calculator for more accurate estimates of what you’ll pay.

What help is available

If you’re struggling to pay for your energy – or are worried about how you’ll afford it come October – the first thing to do is contact your supplier and let them know.

Suppliers must offer payment plans you can afford and, according to Ofgem, you can ask for ‘emergency credit’ if you use a prepay meter and can’t top up.

When you speak to your supplier, you can ask for:

  • a review of your payments and debt repayments

  • payment breaks or reductions

  • more time to pay

  • access to hardship funds

  • advice on how to use less energy

  • Priority Service registration – a free support service if you are in a vulnerable situation.

The government has also announced an Energy Bills Support Scheme to help people deal with rising bills. This basically means that from October, every household across Great Britain will get a £400 discount on their energy bill.

The bill will be administered directly to suppliers, so there’s no need to apply for this. You’ll see a discount of £66 applied to your energy bills in October and November, rising to £67 each month from December through to March 2023.

A government spokesperson said: “Direct support will continue to reach people’s pockets in the weeks and months ahead, targeted at those who need it most like low-incomes households, pensioners and those with disabilities.

“As part of our £37 billion package of help for households, one in four of all UK households will see £1,200 extra support, provided in instalments across the year, and everyone will receive a £400 discount on their energy bills over winter.

“The civil service is also making the appropriate preparations in order to ensure that any additional support or commitments on cost of living can be delivered as quickly as possible when the new Prime Minister is in place.”

Other financial support from the government:

  • For all disability benefit claimants, a one-off £150 disability cost of living payment will be made from September.

  • Three million vulnerable households will receive another £150 from October through the Warm Homes Discount.

  • Pensioner households will receive an additional £300 this winter via the pensioner cost of living payment and £300 through Winter Fuel Payments in November and December.

  • Eligible households will receive the second instalment of the £650 cost of living payment for those on means-tested benefits over the autumn/winter. This will be worth £324 and will be in addition to the £326 paid since July.

Some charities are also offering support. Charis – which supports vulnerable people and works alongside energy companies – has information on grants some charities offer and how to apply, while Turn2us has a helpful benefits calculator and grants search tool.

More help is needed, say charities

Campaigners are warning there isn’t enough support for households. Adam Scorer, chief executive of fuel poverty charity National Energy Action, said: “The scale of harm caused by these price rises needs to sink in. A warm home this winter will be pipedream for millions as they are priced out of a decent and healthy quality of life.

“Households need money in their pockets to weather this storm or we are going to see millions in dangerously cold homes, suffering in misery with unimaginable debt and ill health.

“Action is needed now to prevent the bleakest of winters.”

The consumer watchdog Which? said the government’s financial support for all households must increase from the current £400 to £1,000 – or from £67 to £167 per month – from October to March.

Thomas Lawson, chief executive of national poverty Turn2us, said the ”meteoric rise” in the energy cap “will cripple those of us in the UK already struggling to stay afloat”.

“This is no longer a choice between heating and eating, but not being able to afford either. This is as big an emergency as the impact of Covid and needs a similarly confident government response,” he said.

“As one of the wealthiest economies, it’s simply not acceptable to consign more than a quarter of us into poverty. We implore the government to act with urgency and introduce a cap on energy costs that means that we can heat our homes and turn on the lights as we head into winter.

“Government must increase the value of Universal Credit and legacy benefits by a minimum of £25 a week so those of us in the deepest poverty have a fighting chance of surviving this economic whirlwind. The government must act now.”