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Published 09 April 2024
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How Does the Energy Price Cap Work?

The energy price cap is set by energy regulator Ofgem. It doesn’t cap bills but instead limits how much energy providers can charge consumers for the units of energy they use.

The energy price cap is set by Ofgem, the independent regulator for the energy market in Great Britain. 

It limits how much suppliers can charge a household on a prepayment or standard variable tariff for the energy they use.

But it doesn’t limit your total bill and instead it limits the unit cost of the energy you use. So the more energy you use, the higher your bills will be.

What is the current energy price cap?

The energy price cap is what a typical household on a variable tariff paying by direct debit should expect to pay for its energy. This current energy price cap is £1,690 a year, and it is in place from 1 April 2024 until 30 June 2024.

The previous energy price cap was in place from 1 January 2024 to 31 March 2024 and sat at £1,928 a year. Ofgem said the cap is now at its lowest level since Russia’s invasion of Ukraine in February 2022. 

Ofgem also announced measures to level out standing charges for prepayment customers, removing the premium that these customers pay when compared to those paying by direct debit.

Prior to April, prepayment customers’ bills were kept on par with those of direct debit users through the Energy Price Guarantee. 

It is worth noting that the Energy Price Guarantee ended on 31 March 2024. However, as the price cap has been lower than the price guarantee since July 2023 and new measures have been brought in to aid prepayment customers, this will have no immediate material impact on energy bills.

How does the energy price cap work?

Ofgem sets the energy price cap, which limits the amount that suppliers can charge customers for each unit of energy they use. The cap directly affects anyone on their supplier’s default standard variable tariff and anyone on a prepayment tariff.

The energy cap changes four times a year, in January, April, July and October.

The energy price cap is calculated using ‘typical values’. These assume that an average household uses 2,700 kWh of electricity and 11,500 kWh of gas in a year, meaning the cap isn’t the maximum your energy bill could cost. Your bills will fluctuate depending on how much energy your household uses. 

If you use more than a typical user, your bills can cost more than the headline price cap figure. 

The price cap also includes daily standing charges, which are the fees you’re charged to be connected to the energy supply. The fees are set by each energy supplier and can vary depending on where you live in England, Scotland or Wales.

The energy price cap applies in England, Wales and Scotland. The energy market in Northern Ireland works differently and doesn’t have an equivalent cap.

What is the cost of energy per unit under the price cap?

Per unit, the April 2024 price cap equates to around 24.5p per kWh for electricity and 6.0p per kWh for gas for those on a standard variable tariff.

The typical daily standing charges are 60p for electricity and 31p for gas, although these vary by region. Standing charges are the fixed fees you pay to have an energy connection, regardless of how much you use.

Ofgem advises on its website that “the actual rates you are charged will depend on where you live, how you pay your bill and the type of meter you have.”

What does the energy price cap mean?

The price cap is the maximum suppliers can charge customers on variable tariffs per unit of gas and electricity. 

It aims to ensure that households don’t pay over the odds for each unit of gas and electricity they use, protecting customers who don’t fix their energy prices – especially those who are more vulnerable and more likely to be on one of the affected tariffs.

When wholesale energy prices drop, the price cap falls and suppliers will lower their prices accordingly.

Ofgem works out the price cap by looking at, among other factors, the global wholesale cost of energy. In other words, the amount suppliers need to pay for gas and electricity.

For example, if suppliers need to pay more for energy, as they did in 2022, the price cap will go up to allow them to charge customers more to cover these rising costs.

As well as wholesale energy costs, Ofgem also looks at network and operating costs, the cost of the policies and government schemes suppliers have to contribute to, and VAT, to calculate the level of the price cap.

Does the energy price cap affect me?

Yes, if you’re on a variable or prepayment tariff. And with variable tariffs being more common than fixed-rate tariffs at the moment, the price cap likely affects you. Variable tariffs are more common because the energy market continues to be volatile and energy suppliers have been unable to offer enough competitive fixed-rate deals.

When the energy cap changes in either direction, you’re likely to see a change in energy prices. While a reduction means that energy companies should be passing savings onto consumers, an increase means that they can raise their prices.

With the energy price cap falling significantly in April 2024, some very competitive fixed-rate tariffs have returned to the market. That being said, Ofgem has stated there are still “stubbornly high levels of debt” in the energy system and added that its next objective is to look at “issues surrounding debt and affordability“ for struggling customers.

If you’re on a fixed-rate energy tariff, changes in the price cap won’t immediately affect the amount you pay for your energy, at least until the end of your contract. You can sign up for a new fixed tariff when your fixed deal ends. If not, you’ll automatically be put on the supplier’s standard rate which is affected by changes in the cost of energy.

However, fixed deals aren’t immune from the changing energy costs. Suppliers can raise or cut prices on these too, but your energy will be a fixed price throughout the term of your deal. 

» MORE: Are energy prices coming down? 

What was the Energy Price Guarantee?

From 1 October 2022 until 30 June 2023, the Energy Price Guarantee (EPG) limited the cost of energy so a typical household in Great Britain paid around £2,500 per year.

This Guarantee temporarily replaced the price cap, intending to protect households from the worst of the energy price rises. 

The EPG was in place until the end of March 2024. But, because the price cap was below the level of the EPG from 1 July 2023 until its expiration, the EPG did not impact the amount we pay for our gas and electricity for quite some time.

The EPG provided a discount of around £40 a year on the price cap for prepayment meter customers, aiming to ensure that they did not pay any more than direct debit customers. With Ofgem having brought in new measures to level out bill payments, the removal of this support is also not likely to have a material impact on bill payments.

What can I do to save money on my energy bills?

Even though the energy price cap has fallen, energy is still very expensive. But there are things you can do to try to limit the costs.


The decision of whether to lock into a fixed or variable tariff is up to you. In normal circumstances, fixed-rate tariffs have typically been cheaper than variable tariffs.

However, recently it has been cheaper for most people to stay on a variable tariff rather than switching to a fixed-rate tariff. As the situation can change, it’s worth researching and comparing the cost of tariffs regularly, especially as more fixed-rate tariffs return to the market.

If you’re on a prepayment tariff, your costs are aligned with those paying by direct debit through the Energy Price Guarantee. But it’s still worth keeping an eye on the tariffs available, to see whether you can get a better deal by switching. 

» MORE: Energy tariffs explained 

Save energy

The cost of energy is out of your control, but the amount of energy you use is completely up to you. By using less energy, you could cut your energy bills and save money, as well as helping the environment.

From using appliances more mindfully to draught-proofing your windows and doors, there are countless small changes you can make to save energy in your home.

Apply for support

In response to the energy crisis, the government announced extra support to help households with their energy bills. As well as expanding the eligibility criteria for the Warm Home Discount Scheme so more households can benefit from the payment, the government also brought in some new measures.

From October 2022 to March 2023 all UK households had £400 deducted from their bills in a set of six monthly discounts. This was applied automatically and doesn’t need to be repaid.

The Warm Home Discount Scheme is currently closed and will reopen in October 2024.

The government also announced several cost of living payments to help pensioners, disabled people, and low-income households who receive certain benefits.

Scotland, Wales and Northern Ireland also received extra funding to help households with their energy bills.

Other existing government grants may be able to help. For example, schemes such as Winter Fuel Payment and the Warm Home Discount Scheme can offer some much-needed support if you’re finding it difficult to afford heating for your home. 

Some energy suppliers also aim to offer support to customers, through grants and other schemes, so check with your energy supplier to see if you are eligible for help. For example, the British Gas Energy Trust may offer help to those in financial hardship regardless of who supplies your energy.

If you’re finding it hard to pay your energy bills, it’s important to contact your supplier as soon as possible so you don’t fall into arrears and risk them cutting off your gas and electricity supply.

» MORE: Help if you can’t afford your energy bills

Image source: Getty Images

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