Energy price cap rises again — what it means for your bills

The energy price cap, which limits the amount energy companies can charge households for their energy bills, has risen to £1,849 as of April 1st until June..

The announcement comes as part of Ofgem's quarterly update to the energy price cap with millions of UK homeowners left searching for energy-saving tips.

Here’s what you need to know, including what the energy price cap is, who it affects, and what Ofgem’s future updates will mean for our energy bills.

Energy price cap explained

The energy price cap was originally introduced by the Government in 2019 to limit how much firms can charge consumers for their energy, and ensure households on default tariffs pay fair gas and electricity prices.

However, energy price rises in Europe has put a spanner in the works and Ofgem has needed to increase the energy price cap to stop energy companies going bust.

The scheme was replaced last year by the introduction of the Energy Price Guarantee, which capped bills at £2,500, but this reverted back to the energy price cap.

What is the current level of the energy price cap?

The current energy price cap is set at £1,849 per year for a typical household, an increase of 6.4% to the rate set between January and March (£1,690).

This rise will remain until July 1, 2025, when a new rate will be set.

Who does the energy price cap affect?

The energy price cap affects the energy bills of around 23 million households in England, Wales and Scotland. Variable energy tariffs are governed by the energy price cap, whether you pay by direct debit, standard credit or a prepayment meter.

It does not apply if you are on a fixed-term energy tariff or a standard variable green energy tariff as this is exempt.

Does the energy price cap cap my energy bills?

In short, no. The energy price cap is not designed to limit consumer energy bills, but rather a cap on how much suppliers can charge per kWh of energy use, plus a maximum daily standing charge. As such, households are still charged for how much electricity and gas they use — this is not capped.

That said, the rates charged per kWh (kilowatt-hour) and standing charges are only capped to a degree as they vary per region. This is due to the difference in network charges across the UK, plus it reflects how much it costs to transport energy to where you live.

The current maximum rate for electricity is 27.03p per kWh and for gas, it is 6.99p per kWh. When standing charges are added – they are capped at 53.80p a day for electricity and 32.67p for gas. Although, these rates do vary by region.

When is the energy price cap set?

Prior to August 2022, the energy price cap was updated every six months, but surging energy price rises led Ofgem to announce that it would be updated quarterly, which it said would help to bring stability to the energy market and reduce price shocks for consumers.

It is now adjusted in January, April, July, and October each year.

How does Ofgem calculate the energy price cap?

The wholesale market price of gas and electricity plays the biggest role in how the price cap is calculated. Ofgem uses these figures to assess how much it costs energy suppliers to buy energy from the market, and how much consumers can pay.

The price cap is then updated to reflect how much it would cost energy suppliers to provide energy for an average home.

Why is the energy price cap so high?

The first energy price cap was introduced in January 2019, set at £1,137, with a prepayment cap of £1,138. By October 2021, the typical annual bill had risen slightly to £1,277.

However, energy prices began to climb significantly in 2021 due to various factors with the latest 6.4% rise in the energy price cap primarily driven by rising global wholesale energy prices, according to energy regulator Ofgem.

Ofgem explains: “Rising global wholesale prices for energy are the main reason for the increase. Some people may see a reduction in their standing charges, but this will depend on the region in which they live.”

Wholesale costs account for 78% of the total increase, while the remaining 22% is due to policy costs and inflationary pressures. This means that even though energy prices have come down from the peak of the 2023 energy crisis, fluctuations in international markets continue to impact household bills.

Jonathan Brearley, CEO of Ofgem, highlighted the volatility of the energy market, stating: “Our reliance on international gas markets leads to volatile wholesale prices and continues to drive up bills, which is why it’s more important than ever that we’re driving forward investment in a cleaner, homegrown system.”

In some areas, consumers may see a slight reduction in standing charges, depending on regional network costs. However, for most households, the overall effect will be an increase of £111 per year, bringing the average energy bill to £1,849.

Brearley also warned of rising energy debts, which have reached record levels of £3.8 billion, putting additional pressure on both households and suppliers: “Energy debts that began during the energy crisis have reached record levels and without intervention will continue to grow. This puts families under huge stress and increases costs for all customers.”

The sharp rise in costs has led to the collapse of 31 energy suppliers in the UK since 2021.