From October 1st, the energy price cap will be set at £1,923 a year for a typical household that uses gas and electricity and pays by Direct Debit.
The price cap, which limits how much your energy supplier can charge you for each unit of gas and electricity you use, makes sure that prices for people on default energy tariffs are fair.
With the price cap being lowered to £1,923 (down from £2,074), energy prices will decrease. You can find out more about the prices under the new cap on the Ofgem website.
Here, we explain everything you need to know about the energy price cap and how it works…
Why is the energy cap changing?
The energy price cap isn’t fixed; it changes every three months. The cap is based on recent wholesale energy prices, and changes happen due to the cost of energy bought by suppliers going up or down. It depends on things like how much energy is available and how much people need.
As wholesale energy prices have been decreasing, energy suppliers must pass this saving on to their customers, and that is what is happening in October.
How do energy prices work?
Although it can be a little misleading, it’s important to note that the price cap doesn’t set a maximum spend; you’re charged a daily standing charge and a price per unit. The cap mainly stops companies from charging too much for each unit of energy and the standing charge.
This means that you pay for the amount of energy that you use, but the price of each unit of energy will be cheaper after October 1st if you’re on the price cap.
If you are locked into a fixed tariff, this will not be affected by the energy price cap, and your prices may already be below the cap. A fixed tariff means that your standing charge and price per unit will not change for the duration of the fixed deal.
Will my bills come down in price?
This will depend on many factors. As mentioned above, unless you’re on a variable tariff, you won’t be affected by the change.
The amount of energy you use will also affect your prices, as we approach autumn and winter, households tend to use more energy, meaning bills will generally be higher in the winter.
Finally, your payment method will also affect whether your prices decrease. For customers paying by monthly direct debit, suppliers will sometimes look to estimate your yearly usage and spread the costs evenly, meaning that you’re not charged a lot more in the winter than in the summer.
If you’re in credit or feel that you’re being overcharged, you can speak to your supplier and request a reduction in your direct debit – however, it’s important to note that having credit saved up for the winter can be very beneficial.
Should I Fix My Energy Tariff?
With all the uncertainty about energy prices, you might be wondering if you should switch to a fixed-rate tariff. There’s no right or wrong answer to this, it depends on your situation and your preference. But here are a few things to consider when deciding:
Cap Trends – Keep an eye on how the cap changes. If it keeps going down, staying on a variable tariff might be better.
Deals available – Look at different energy deals regularly to make sure you’re getting the best rate.
Stability – Fixed-rate tariffs give you stability, knowing your rates won’t go up during your contract.
Leaving fees – Be aware of fees if you want to switch before your contract ends. Also, if the energy price cap drops a lot, you might end up paying more than you need to.
What should I do if I’m struggling to pay my energy bills?
If you’re struggling to pay your bills, you should speak to your supplier as soon as possible. The earlier you make them aware of the situation, the more they will be able to do to support you.
It’s also worth checking if there are any cheaper deals available.
If you’re struggling with debt and feel like you need support, call us on 0800 072 1206. We’re open from 8am – 8pm Monday to Friday and 9am – 3pm on Saturdays.