January 4, 2019

Energy Price Cap? Ofgem Energy Price Cap Explained

The energy price cap limits how much energy suppliers can charge you per unit of energy if you are on the suppliers default tariff or standard variable tariff (SVT). These are the more expensive tariffs you get automatically rolled onto when your first deal has ended. The energy cap does not limit the total cost of your bill - your bill is determined by how much energy you use. If the cost to supply energy falls, energy suppliers will have to pass on these savings to their customers.

Will the Ofgem energy price cap limit my bill?

The Ofgem energy price cap promises to ensure you pay a fairer price for your gas and electricity. The energy cap, which starts on January 1st 2019 promises to protect you against overcharging. Too good to be true? Just a little bit.

 

Who is Ofgem?

Let’s clear this up. Ofgem is the Office of Gas and Electricity Markets. They were set up to protect the interests of electricity and gas customers. Ofgem is responsible for regulating energy suppliers. Independent of government and the energy industry, Ofgem is the consumer's voice in a crowded room.

Ofgem:

●      Promotes value for money

●      Improves the security of energy supply and sustainability

●      Supervises new energy markets and competition

●      Regulates government energy schemes

What is the Ofgem energy price cap?

The energy price cap limits how much energy suppliers can charge you per unit of energy if you are on the suppliers default tariff or standard variable tariff (SVT). These are the more expensive tariffs you get automatically rolled onto when your first deal has ended. The energy cap does not limit the total cost of your bill - your bill is determined by how much energy you use. If the cost to supply energy falls, energy suppliers will have to pass on these savings to their customers. (rightly so). And if costs rise, the cap ensures price rises are justified - so you won’t be overcharged.

You are only protected under the Ofgem price cap if you use a pre-paid meter, get the government’s Warm Home Discount or are on a standard variable energy tariff or default tariff. This equates to an estimated 11m customers so there is still a very large amount of the population who remain unprotected. Even if you are protected Ofgem quote themselves "Greater savings are to be had if you switch."

How does the Ofgem energy price cap work?

● Every six months Ofgem work out how much it costs for suppliers to supply you with energy (This can me more frequent than 6 months)

● Cap levels are revised, making sure you pay a fairer price

● Energy suppliers must cut their prices to below the cap (most will be right near the cap limit)

● If costs fall, the cap make sure suppliers pass on savings

● If costs rise, Ofgem will make sure you don’t overpay

Why is the Ofgem energy price cap misunderstood?

We’re all busy. At first glance, the Ofgem energy price cap looks like a cool thing. You might think, “awesome, I’m going to save loads on my energy.” We hate to be the stick in the mud, but It’s not all wine and roses, sadly.

Not everybody is protected by the price cap

The energy cap does not protect you if you’re on a fixed rate tariff. According to Ofgem, people on fixed rate tariffs already get a better deal - although many fixed rate tariffs are more expensive than the cap level.

The cap doesn’t affect how much energy you use

Ofgem has been transparent about how the price cap doesn’t affect how much energy you use. The price of energy can still go up and down because the Ofgem price cap sets the price for each unit of energy, not your monthly bill. For example, you might you use more energy in winter so your bill will be higher. Here’s another way of looking at it. Imagine a price cap on a cup of tea (or coffee), say it’s £1. You only pay £1 for one cup of tea. But the more cups of tea you drink, the more you have to pay.

One unit of energy = one cup of tea.

Take a look at this shorter edited video from Ofgem explaining how it works:

Price caps don’t limit your bill

You will only save money if you’re on an approved energy tariff and you currently spend over £1,137 a year on energy. £1,137 is based on the average household usage, but again better tariffs are available if you switch. Your total annual bill could be as low as £921 if the average usage was applied to the cheapest tariff. (That's a saving of £216 still to be had - even higher if your usage is higher than the average person)

Take a look at below infographic from Ofgem showing some of the savings. Note the point on better saving to be had if you switch and don’t forget: if you’re on a fixed rate tariff you won’t save anything: Zero, zilch, nada.

(Link to full PDF Infographic version)

 

The cap level will change.

 Ofgem have already said they expect the cap level to rise from £1,137 early in 2019, so is a changing cap really a cap at all? It's easy to think that every energy provider will be forced to charge the same rate, but this is not true and if people think there’s no need to switch energy companies, because they all have the same rates, they won’t bother, and could end up overpaying.  

Why it still pays to switch energy suppliers

Don’t be fooled by the energy price cap. Don’t think that just because a cap is in place, every energy supplier has the same rate. Don't think the cap is the best deal available - There are better deals to be had. You still need to shop around — good news for you bargain hunters!

We had a nosy at the Ofgem website and did some digging. We found some interesting stuff. Firstly this:

 

“Even if you are covered [by the energy price gap], you should still see what other deals are available. That’s because gas and electricity suppliers may be able to offer different tariffs that could be better for you, and save you more money.”

 

And this. Straight from the horse’s mouth:

 

“We still recommend you shop around for the best energy offers. It is likely there will be offers which could save you even more money on your gas and electricity than sticking with a contract covered by the price caps.”

 

Ofgem is openly encouraging people to shop around for the best energy deal, and we can confirm it always pays to to keep checking the market for when you need to switch energy supplier. Switching energy suppliers regularly to ensure you’re on the best deal can save you a small fortune on your energy bills. But switching has its limits, that’s why we created Flipper.

 

About Flipper

When you switch energy supplier, you have to do the legwork. You have to compare prices (you could use price comparison websites, but you’re not guaranteed to find the best deal), choose a tariff, fill out paperwork and the rest.

We’re the first automatic energy switching company. Only, we call it ‘flipping’ - here’s why.

Flipping removes the hassle from switching energy providers by continuously checking the market for the best deal and automatically flipping you to the cheapest tariff.

Since 2016 we’ve saved our members millions by flipping them to the best energy deal. The average yearly saving for one member is £385. And we’re honest about our savings figure. We charge our members a small annual fee of £25, which we only charge if we find you a saving of more than £50.

The Ofgem energy price cap is a good idea, but it doesn’t help everyone - only those on poor value rates, those who stay loyal, those who are too lazy, or those who think it's a hassle to do so.

Try it for yourself with Flipper, The easiest, fairest and fastest way to save money on your gas and electricity bills.

Sign up

Join Flipper and never overpay for energy again. We guarantee to save you money or you won't pay a penny.

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