Wondering what the price cap is or what you're paying for in your energy bill? Look no further. We've created a handy list of Frequently Asked Questions to help you through the jargon.
Q: What is the energy price cap?
A: The energy price cap is a limit set by Ofgem on the unit rates and standing charges that suppliers can charge customers on a standard variable or default tariff. It is not a cap on your total bill. Your total bill still depends on how much energy you use, where you live, your meter type and how you pay.
Q: How does the energy price cap work?
A: The price cap sets the maximum amount suppliers can charge per unit of gas and electricity, plus the standing charge you pay each day for being connected to the energy network. Ofgem reviews the price cap every three months.
Q: How does Ofgem decide what the price cap will be?
A: Ofgem considers multiple factors in the cap, such as the cost of wholesale energy, network costs, policy costs, supplier operating costs, metering costs, debt-related costs and VAT.
Q: Does the energy price cap limit how much I pay overall?
A: Not directly. The price cap limits the overall bill total for an average consumer, although your actual bill total will be based on your own usage. This means your bills might be more or less than the average set out in the price cap.
Q: How often does the price cap change?
A: Ofgem releases a new price cap every quarter, so you can expect the price cap to change once every 3 months – in January, April, July and October.
Q: Does the price cap affect all energy suppliers?
A: Yes – all domestic energy suppliers must price their variable tariff either in line with or below the price cap. This ensures all consumers have access to a variable tariff priced in line with the cost to supply energy.
Q: Does the price cap apply in Northern Ireland?
A: No – Ofgem regulates Great Britain only. This means the price cap only affects customers in England, Wales and Scotland.
Q: What costs are included in the price cap calculation?
A: Your bill is made up of several costs – including the cost of wholesale energy, the cost of distributing this energy to your home, government policy costs, supplier operating costs, metering, debt costs and VAT.
Q: Does the price cap include standing charges?
A: Yes. The price cap considers both the unit rate and standing charge.
Q: What role does Ofgem play in the energy market?
A: Ofgem is the energy regulator, and is responsible for ensuring energy consumers are protected, promoting fair competition and ensuring suppliers meet the requirements on them. One of their key responsibilities is determining the price cap.
Q: Are regional differences included in the price cap?
A: Yes. Due to local differences in infrastructure maintenance, population density, average weather and local supply and demand, energy prices can vary by region. Ofgem calculates the price cap by region, ensuring each consumer pays a fair price in comparison with the cost of supplying that energy,
Q: Does the cap include VAT?
A: Yes. VAT on domestic energy is charged at 5%, and this is considered in the price cap calculation.