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What does the new £2,500 price cap mean for me?

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UPDATED October 17 2022

From 1 October 2022*, new limits have been set on how much your energy supplier can charge you.

Reading about this new price cap, or ‘Energy Price Guarantee’, you wouldn’t be alone in thinking that your bills will not go above £2,500 a year. Here, we will explain why that’s not true, and what the price cap really means for you.

The price cap applies to each unit of energy you use. The cap varies very slightly across different parts of the UK, but on average, households will pay no more than 34.04p/kWh for electricity and 10.28p/kWh for gas. The standing charges (the price you pay daily regardless of use) will be capped at 46.36p per day for electricity and 28.49p per day for gas. There are different limits for homes with prepayment or Economy 7 meters

Where does the figure of £2,500 come from?

The government is trying to make it simple. To try to explain the impact the price cap will have, the government works out what it would mean for a “typical home” which uses an average amount of both gas and electricity and pays by direct debit. The price cap on unit rates means that for this typical household, bills will not rise above £2,500 per year. In reality, this ‘typical’ home probably doesn’t exist – the amount of energy every home uses is different.

The more you use, the more you will pay

Because the price cap is on the unit rate, and not on the total amount you spend, you will still be charged for using more energy. 

It’s important to remember that the price cap was already in place before October 2022 at a lower level. The new Energy Price Guarantee protects households from very high energy bills, but does still mean an increase for most.

What is the £400 energy bill discount?

The government is also giving £400 to every home to help with rising energy bills. In most cases, this discount, known as the ‘Energy Bills Support Scheme’, is applied automatically by the supplier to your bill. 

My direct debit has been reduced, why?

Because of the £400 grant from the government, some suppliers have temporarily reduced direct debit payments. The £400 will be split into six payments between October 2022 and March 2023. If your supplier reduces your direct debit, you won’t be paying less off your balance that you owe to your supplier. It just means that the government is paying the difference. 

What does the price cap mean if I’m on a fixed tariff?

For most fixed tariffs, your unit rate will be reduced to the cap level. There are certain circumstances where this isn’t true. For instance, if you signed up to a fixed rate tariff that is much more expensive than the price cap level. In this scenario, the government will reduce your unit rate by a maximum of 17p per unit of electricity and 4.2p for gas. Many suppliers are offering to switch customers on these very high fixed rate tariffs to a variable tariff. These tariffs are fully protected by the price cap without charging an early-exit fee. Check with your supplier to find out what their policy is. 

Many tariffs will end during the price cap period (October 1st 2022 – September 31st 2024). If your fixed tariff ends during this period, you will automatically drop down to the current price cap prices. 

*Following the news from October 17, the Energy Price Guarantee in its current form will likely end in April 2023.