Energy Price Cap to increase by £693 as of April 2022

Despite that steep increase, there are still space to compare energy prices and find good opportunities on the market.

What is the energy price cap?

The Energy Price Cap is the maximum price that energy suppliers within the United Kingdom can impose per kWh of electricity and gas. Although it is applied throughout the UK, but could vary slightly on a regional basis. The cap is set by Ofgem and is updated on a bi-annual basis in April and October. The energy cap limits energy companies from making large profits by charging unfair prices. The cap allows energy suppliers to pass on all reasonable costs to customers and was introduced by Ofgem in January 2019.

What is the energy price cap per kWh in 2022

Before, the average price cap per kWh was £0.21 for electricity and £0.04 for gas. Under the new regulations, the average price cap per kWh of electricity will be £0.28 and £0.07 for gas. These unit prices are then converted to a yearly average cap. Find here how the average consumption for the average price cap is calculated.

How is the energy price cap set?

The Energy price cap is based on a multitude of factors. The cap allows energy suppliers to be able to pass on costs of conducting business on to the customers but still leaving the customers with a fair price. There are quite a few different types of costs for energy suppliers that all contribute to the calculation of the energy price cap.

Costs influencing the energy price cap

The major components of the energy price cap are the underlying wholesale prices of gas and electricity. Increased wholesale prices for these commodities lead to increased operating costs for energy suppliers. These increased costs are then passed on to consumers in the form of higher prices. The following graph shows the breakdown of the energy price cap for the current cap and the breakdown for the updated cap of April 2022.

As you can see:

• The main increase came from the large rise in wholesale costs. Which is how much energy suppliers pay for gas and electricity.
• Also Network costs: which are costs related to building and maintaining the gas pipes and electricity to transport energy to your home have risen sharply recently.
• Operating costs, which are costs related to running an energy business such as billing and metering also have increased and thus allow for a higher cap.
• Taxes have increased by 59% in the last period and other minor costs such as Policy costs and Headroom costs have been rising slightly, however with marginal influence on the total cap.

Electricity Price Cap in my area

The energy price cap can differ between different regions within the UK. The Uk has been divided into 14 regions and each region has its specific rates.

In the following table, we have lined up the maximum rates for electricity per kWh for all of the different regions.

Gas prices per region under the new energy price cap

Also gas prices are capped differently in each region. In the table below you can see the rates for gas per kWh for all of the different regions based on the newly updated energy cap.

Dual rate electricity prices under the new energy price cap

It is often also possible to have a dual rate plan in which both electricity and gas are combined into one comprehensive plan. The table below displays the limits for dual rate plans for each region.

What is the prepayment meter cap?

Up to 4 million houses in the UK have aprepayment meter installed. Prepayment meters differ from standard meters in a way that with prepayment meters, the client pays for the energy expenses upfront. Prepayment meters are capped slightly higher than default tariffs, with the average cap standing at £2,017. Which is £46 higher than the average cap for default tariffs.
Down below is the detailed Energy Cap for Prepayment Meters

What does the new energy price cap mean for me?

Most people will be affected by the update of the energy price cap. Only if you have a fixed tariff or when your supplier is exempt from the cap it might be possible that the price cap does not influence your personal plan. At the moment Ecotricity, Good Energy and Green Energy UK are the only suppliers that are exempt from the cap. These 3 companies thus such can impose rates that surpass the capped rate. About 22 million households in the UK will be affected by the price cap increase.

How the cap has changed over time?

The energy cap is updated twice a year in April and October. The new price is calculated based on gas and electricity prices and also other factors such as operating costs for energy suppliers, network costs, and headroom costs. The cap has been moving upwards over the last few years but an increase like this year is unprecedented. The graph below displays the evolution of the energy price cap over the last few years, clearly highlighting the current sharp increase.

How does the energy cap work?

The price cap as the name implies puts a limit on how much you have to pay for your yearly energy bills. It does not imply that you will definitely pay the exact price of the cap as your personal supplier could give you a rate that is lower than the maximum. The price cap is based on average national consumption. If you consume more than average, your actual bills will be higher than the stated cap. To calculate your personalized energy cap, multiply the kWh price by the amount of kWh of electricity and gas you typically consume yearly. Another component of your bill is the so-called standing charge. Which is a daily charge which will be added to your bill on top of your consumption costs. Under the new cap for direct debit, daily standing charges are £0.45 for electricity and £0.27 for gas. This adds £0.72 *365 or around £265 to your yearly bill.

How will the price cap affect my bills?

Energy suppliers often use a higher energy cap to pass on more of the operating costs to customers. Especially since the wholesale prices of electricity and gas have seen such a sharp increase it is likely that the majority of the extra space under the new cap will be used by energy suppliers.

Is this increase gonna lead to the reopening of the market?

In the last months, many suppliers stopped taking new clients due to the stringent consequences of the energy crisis. It was simply impossible for suppliers to make profit or just break-even given the sharp increase in gas and electricity wholesale prices. The new energy cap could open up possibilities in this realm as their revenues could increase significantly due to the higher prices they could charge. There are signs that the market is starting to be reopened again shortly.

What impact will it have on tariffs?

The increased cap allows suppliers to charge substantially higher rates. To meet their increased costs of supplying energy, it is likely that suppliers will try to fully or partially offset the higher costs by increasing prices.

Are any suppliers exempt from the price cap?

A majority of the suppliers will be falling under the 2022 energy price cap. Ecotricity, Good Energy and Green Energy UK at the moment are the only companies that will not be part of the price cap. They are exempted by Ofgem because they offer clean renewable energy. Clients at these 3 companies could thus be subject to prices that are above the cap.

How do I avoid paying the cap?

The only way to not be subjected to the cap is to be on a fixed rate tariff. However, due to the rising energy prices over the last months, at the moment a fixed rate tariff will generally be very close to the actual capped price. Therefore switching to a fixed rate tariff might not be worth the effort at the moment. In the future, this could always change.

Why has the energy cap changed?

The sudden big rise in the energy cap in the UK might stir questions about why and how this has happened. The single most important factor that has led to the changed energy price cap is the energy market crisis.

Energy market crisis

The past few months have been very eventful in the energy market. The main culprit of the crisis has been the rising gas and electricity prices in Europe. UK prices have risen sharply as well. They are still below average, despite the potential influence of Brexit on energy prices. The rising prices have seen a plethora of suppliers go bankrupt, with around 4 million households in the UK forced to switch as a consequence. In order to guaranty the stability of the market and enable the remaining suppliers to be profitable >Ofgem adapted the Price Cap.

Why have gas prices been rising?

• Demand for natural gas plummeted during the first lockdown following the Covid-19 crisis. The increased demand for gas following the loosening of covid measures. has put pressure on gas supply in Europe.
• Increased demand for natural gas from Asia, especially from China, has put additional pressure on European gas supplies.
• Due to the cold winter in 2020/21 the gas supplies have been lower than normal.

Why have electricity prices been rising

The heightened price for natural gas indirectly caused electricity prices to soar as well. One-third of British electricity is generated by burning natural gas. Following the increased costs of natural gas, electricity prices have followed as well. In the following article we explain in detail how electricity prices are being determined.

Why have energy firms collapsed?

Due to the rising prices and the energy cap being fixed at a certain level for half a year, many energy companies were troubled in the past months. This has even led to numerous energy suppliers being unable to generate enough revenue to cover their costs and subsequently unable to continue operating. Major examples include Avro Energy and People’s Energy who combined served approximately 800.000 clients.

What can I do to offset the increase?

The hefty increase in the energy price cap can seem worrying for consumers. Especially in times like these with high inflations and uncertainty regarding the long-term impact of Covid-19. Therefore, it is important to know what you can do yourself to decrease the potential impact of the higher energy cap on your personal situation.

How do I know if I'm on a price-capped tariff?

If you are not a client at Ecotricity, Good Energy, or Green Energy U, and have not fixed a pre-set tariff in the past your plan is subject to the price cap. Switching to a fixed tariff is still possible but often does not make sense as fixed tariffs are also increasing rapidly following the UK energy crisis.

What support is available?

Energy companies and the government are very aware of the consequences of the increased prices for consumers. Therefore, there are several options for consumers to get support. The most important are the council tax rebate and the energy bill discount scheme.

• • Council Tax Rebate.
  • Energy Bill Discount Scheme.
  • Payment breaks.
  • Winter Fuel Payment.
  • Emergency credit for prepayment meter users.
  •  £140 Warm Home Discount

• • Council Tax Rebate

The council tax rebate

• • is a one-time rebate offered by the government which offers consumers that are in council tax band A to D a £150 discount. Around 80% of the UK population is part of one of these 4 tax bands. To be sure that you apply for the council tax rebate,

check

• what band you are in on the government website