What is the energy price cap and how does it work? | The Sun

THE energy price cap comes into effect from October 1 – but what does it all mean?

PM Liz Truss announced emergency measures to help with energy bills as millions are being battered with soaring costs.

In a move that will buffer millions from a miserable winter of extortionate energy bill rises, she froze the price cap at £2,500 under the Energy Price Cap Guarantee.

It means no family will pay more than £2,500 a year for the next two years on their energy bills from October 1.

This will save the typical household £1,000 a year, the government claims.

The Prime Minister also announced households would still get the £400 rebate on bills this winter.

And millions excluded by the price cap to get support from a new fund

But what is the energy price cap and how does it work? We explain all you need to know.

What is the energy price cap? 

The energy price cap sets a limit on the unit price and standing charge that companies can bill their customers.

The cap is based on wholesale prices over a six month period.

The price cap affects roughly 22million people on default or standard tariffs offered by the country's energy providers, according to Ofgem estimations.

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An increasing number of energy users are on the price cap as there are limited fixed deals left out there on the market.

The price cap was originally set up in January 2019 by Ofgem, in a bid to limit how much providers can charge on default energy bills to spare Brits from being unfairly charged.

It has soared to eye-watering heights this year due to the energy crisis.

Before, locking into a fixed energy tariff was the cheaper option, but that has changed since prices started rising so much.

Previously, families were able to save money by shopping around for energy deals, but then a number of companies went out of business.

This left people with barely any options on tariffs.

How much is the energy price cap?

The cap on standard variable and default tariffs is set by Ofgem.

Currently, the energy price cap means the average annual household bill is £1,971 a year.

It was supposed to hike to £3,549 a year in October – but Liz Truss will freeze it at £2,500 a year for two years.

The £2,500 figure is an average bill a household might pay. You could pay more if you use more energy – or less than this if you use less energy.

Right now, the current rates for duel fuel tariffs are:

  • 7p per killowatt hour (p/kWh) for gas
  • 28p/kWh for electricity
  • A standing charge of 27p per day for gas
  • A standing charge of 45p per day for electricity

And now, energy giant Octopus is announcing a £40 million plan to tackle standing charges when the price cap hits.

Under the new promise, duel fuel customers will be paying 44.71p per day for electricity and 26.84p per day for gas from October 1 instead – which saves them roughly £12 per year.

How does the energy price cap work?

The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.

Ofgem sets a maximum daily standing charge which is what households have to pay in order to have their home connected to the National Grid.

The energy price cap only applies to providers' standard and default tariffs.

This means if you're on a fixed-term energy deal, the cap doesn't apply to you.

Over six million households are currently on a fixed energy tariff, and could end up paying more than the Energy Price Guarantee cap due to the way the discount would be applied.

So far, British Gas, EDF, Octopus Energy and Ovo Energy have confirmed that none of their customers on fixed tariffs will be hit by this loophole.

The new rules mean that customers on expensive fixed deals can simply move on to the cheaper standard variable tariff, which is protected by the Energy Price Guarantee, free of charge.

So you should keep an eye out on emails and text messages if you haven't receoved an update from your supplier yet.

Is it cheaper to switch or stick with the default tariff?

There are usually no prizes for loyalty when it comes to energy bills.

In the past, households could save hundreds of pounds by switching supplier every year.

This is harder to achieve in today's market – Martin Lewis has previously said it might be worth some customers fixing a deal.

But as Ms Truss has frozen energy bills at £2,500, there's no need to look into fixing a deal now.

The reason bills have soared so much in recent months is in part due to the war in Ukraine.

Russia is a massive exporter of natural gas and the country has slashed supplies to Europe, driving prices up.

The nation also exports crude oil, which is why petrol prices have been high in recent months.

What help can I get with my energy bills?

Energy suppliers may offer you a grant if you're in debt to your provider and struggling to pay your bill.

For example, British Gas has earmarked £6billion to help customers.

Bulb has re-opened its hardship fund and some households could get up to £140.

Some customers may be eligible for extra help such as payment breaks and emergency credit to top up prepayments. 

Millions will get a £400 energy rebate from the government from October – be on look out for scams regarding this as several emails asking for personal details are being spotted.

It's important to note the £400 payment will land in bank accounts automatically and you should not give away personal details to anyone.

And millions of households should have already received a £150 council tax rebate to help cover costs as well.

Around three million have just weeks left to claim theirs.

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Households might be eligible for the Winter Fuel Payment, which gives people over 65 up to £300 to help keep their home warm during the colder months.

Here is everything you need to know about the gas price crisis and the latest on Russia/Ukraine crisis.

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