What is the Price Cap?
The energy price cap, established by Ofgem (the Office of Gas and Electricity Markets), sets a maximum price per unit of energy (measured in kilowatt-hours) that suppliers can charge. It also includes a maximum daily standing charge, which is the fixed cost consumers pay regardless of their energy usage.
Purpose of the Price Cap
Consumer Protection: The primary goal is to protect consumers, especially those who do not regularly switch suppliers or are on default tariffs, from unfairly high prices.
Market Stability: By limiting how much suppliers can charge, the price cap ensures a level of stability and predictability in the energy market.
Encouraging Competition: It motivates suppliers to offer competitive rates and better deals to attract customers who might otherwise stay on default tariffs.
How the Price Cap Works
Regular Reviews: The price cap is reviewed and adjusted by Ofgem twice a year, typically in April and October. Adjustments are based on various factors, including wholesale energy costs, operational costs of suppliers, and other market conditions.
Variable Rates: While the cap limits the maximum rate suppliers can charge, it does not set a fixed price. Therefore, consumers can still benefit from lower rates offered by suppliers, and it is beneficial to shop around for better deals.
So what changes are happening from July?
Adjusted every three months, the Price Cap is scheduled to decrease again starting from July 1st, thanks to the recent decline in wholesale energy prices. The fall at an average of 7% for most customers is happening through a reduction of unit cost.
Current Price Cap Rate (April - June 2024) | New Price Cap Rate (July - September 2024) | |
Electricity | Unit rate: 24.50p per kWh Standing charge: 60.10p per day | Unit rate: 22.36p per kWh Standing charge: 60.12p per day |
So this is good news for higher-usage households, providing them with a proportionately bigger reduction in bills though will not see much gain for households that reduce their usage.
Standing Charges
The standing charges will remain unchanged, costing the average household £223 per year (when paying by direct debit). This amount increases to approximately £334 for households requiring both gas and electricity.
Standing charges are designed to cover a range of expenses, including meter readings, maintenance of the UK's energy infrastructure, investments in renewable energy sources, and government programs aimed at assisting vulnerable households.
Each energy supplier determines the daily rate based on these factors, as well as considerations such as your location, the tariff you are on, and their need to turn a profit. Although energy suppliers have the flexibility to establish their own charges, they are overseen by Ofgem to ensure these charges stay within acceptable limits.
So why consider battery storage solutions?
Despite the good news that the energy price cap is set to decrease over the next few months, there are rumours that it may rise again in the near future. As a result, households will likely continue to face significantly higher rates compared to pre-energy crisis levels of 2021.
By investing in home battery storage solutions now, you can secure lower energy prices at around 7-8p per kWh. Plus, you can take pride in knowing that your energy comes primarily from renewable sources.
To learn more about home batteries and why you might want to invest in one, click here!
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