More than 11m people on default energy tariffs could see their energy bills rise by £96 a year unless they take action and move to a better deal.
The new energy price cap has just been announced by energy regulator Ofgem and will come into effect for six months from 1 April.
The cap will increase by £96 to £1,138 for default customers and by £87 to £1,156 for prepayment meter customers.
Here, we answer three important questions about what exactly the energy price cap is, why it was introduced, and how you can beat it.
What is the energy price cap?
The energy price cap limits how much suppliers can charge consumers for their energy usage. The cap is set by Ofgem which reviews and updates it every six months to reflect factors like wholesale energy prices and distribution costs. Ofgem can also alter the price cap depending on market changes.
The current price cap, which came into effect from 1 October 2020 and will run until 31 March 2021, caps bills at a maximum of £1,042 a year. The new cap, which applies from April 2021 until the end of September 2021, will be £1,138 a year. This includes a £23.69 charge to help suppliers cover Covid-19 related bad debt caused by people being unable to pay their bills as a result of the pandemic. . A new default prepayment energy cap for April 2021 has also been announced, which is £1,156. The current prepayment energy cap is £1,070.
The energy price cap only applies to default tariffs – or standard variable tariffs – which are often the most expensive plans offered by gas and electricity suppliers. Most suppliers have set their default tariff prices very close to maximum energy cap limits since they were first introduced in January 2019. If you’ve never switched energy suppliers before, or have rolled off a fixed energy price, it’s likely you’ll have been automatically rolled onto one of these tariffs.
Why was the energy price cap introduced?
The energy price cap was introduced to make sure people who never switch energy suppliers pay a fairer price for their gas and electricity. By setting a maximum charge rate, the cap limits the amount that energy suppliers can charge per unit of energy if you are on a default tariff.
However, while the idea was to prevent people paying too much for their energy, the cap only really saves money for those who are on more expensive default tariffs to begin with.
How can you beat the energy price cap?
The energy price cap has faced scrutiny from energy experts who argue it gives consumers a false sense of security when in fact they could save more money by switching energy suppliers.
For example, when it was changed last October, the price cap was still over £200 more expensive than the cheapest energy deal on the market. Similarly, now the new cap has been introduced, consumers could save up to £188 a year by opting for the cheapest energy deals available, rather than staying on a default variable tariff.
The trap is that consumers may assume they’ll automatically pay the best price under the energy price cap. But since it only applies to default tariffs – which as previously mentioned tend to be the most expensive on the market – it’s likely you’ll find a much better deal by switching suppliers, or at least switching energy tariffs. For more information on this, you can read up on these four reasons why you should switch energy supplier now.
If you’re currently on a fixed tariff, it might be useful to make note of when it ends so you can plan ahead and avoid being automatically rolled onto your supplier’s default tariff. Our energy comparison tool can help you find the best energy deal to switch to quickly and easily. All you’ll need to do is provide your postcode and answer a few simple questions about your energy usage, which you’ll be able to find on your latest bill. You’ll then be provided with a list of tariffs from different suppliers along with how much they cost. You can then choose the deal you like and sign up for it online.
Other ways to cut energy costs
As well as switching energy suppliers, you can also make a number of simple lifestyle changes to help you save money on your energy bills, which could potentially save you up to around £700 a year. For example, turning your thermostat down one degree, draught-proofing your home and switching to energy-saving light bulbs can all make a difference to bills.
If you still have further questions about switching energy suppliers, you might find these energy switching FAQS useful.