Are you wondering what the UK energy price cap means and how it works? You’re not alone, as millions of UK households are asking the same question.
UK Energy Price Cap: How we Got Here
Most UK energy consumers may not know that we have a regulator Ofgem, that regulates what our suppliers charge us. Ofgem sets a maximum price that our energy suppliers can charge us per unit of electricity or gas we consume.
Moreover, most of us never bothered about this because our energy cost has been stable for decades.
Then, the war in Ukraine happened, and our world as we knew it changed overnight!
The war affected the global supply of electricity and gas. We know what happens when the supply of goods drops while demand remains constant – price surge!
So, it is no surprise that our cost of electricity and gas has surged. This is what led the UK government to intervene.
This is how we came about the UK energy price cap.
What Does the UK Energy Price Cap Mean?
Before I explain how the UK government’s energy price cap works, let me quickly explain what it means.
This is the exact phrase the UK governments website use to describe the “new Energy Price Guarantee:”
“The Energy Price Guarantee will reduce the unit cost of electricity and gas so that a typical household in Great Britain pays, on average, around £2,500 a year on their energy bill, for the next 2 years, from 1 October 2022.”
When the UK government announced the price cap, the government guaranteed that the average UK household would pay, on average, around £2,500 a year. The phrase “pays, on average, around £2,500 a year” has created a lot of confusion.
Firstly, a lot of UK consumers believe that this means that their annual gas and electricity bill will be fixed at £2,500. This is incorrect.
The key word in the price guarantee is “average UK household.”
If you remember, in my overview section, I mentioned that our energy suppliers charge us per unit of electricity or gas we consume. This unit is measured in kWh.
When you send your electricity and gas meter readings, in effect, you’re sending your total energy consumption (in kWh) to your supplier.
Your supplier then calculates your electricity and gas consumption by multiplying your total consumption by the unit price (price per kWh). It is important to mention that your supplier also includes what is called a “Daily standing charge.”
What the UK energy price cap guarantee means is that if you pay by Direct Debit, your supplier will charge you £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas. In other words, the UK government has guaranteed that you will not pay more than these unit prices for electricity and gas.
This means that, no matter what the global energy prices are doing, you’ll pay £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas. This price cap starts on October 1, 2022, and is fixed for the next two years.
Earlier I mentioned that in addition to the rate you pay for electricity and gas (in kWh), your energy supplier also adds a “Daily standing charge.” For the UK energy price cap, you’ll also pay an additional daily standing charge of £0.46 (46p) for electricity and £0.28 (28p) for gas.
How Does the UK Energy Price Cap Work?
Now that I have explained what the UK Energy Price Cap means, let’s look at how it works for you.
How does the UK energy price cap work for you as a consumer?
Earlier, I mentioned that the UK government’s Energy Price Cap means that you pay £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
This means that if you consume 4,000 kWh of electricity in a year, you’ll pay £0.34*4,000 kWh. This equals £1360.
In the same argument, say you consume 2,000 kWh of gas, you’ll pay £0.103*2,000, which equals £206 per year.
So, if we add £1360 (for electricity) and £206 (for gas), the total energy cost for the year will be £1566.
The implication of the per unit price understanding is that the more units of energy you use, the more you spend. So, the UK government’s Energy Price Cap guarantee DOES NOT guarantee that your annual energy bill is fixed at £2,500.
Rather, it means that what you pay per unit of energy consumed is guaranteed for two years from October 1, 2022. The UK government will pay your supplier the difference.
What do I Need to do About the Energy Price Cap?
Now that you know what the UK Energy Price Cap guarantee means and how it works, the next question on your mind would be, “what do I need to do to benefit from this.”
You do not need to do anything to get the government to pay the difference. You’ll continue to send your meter readings to your supplier as normal.
Then, you’ll receive your bill based on the government’s guarantee rates.
The UK government will pay the energy suppliers directly for any difference between what they would have charged you and what you are actually paying.
The only action you need to take as soon as possible is to send your meter readings to your supplier. My energy supplier has already contacted me to send my meter readings as of September 30th, 2022.
My supplier says that I have until October 5th, 2022, to provide my meter readings.
So, if your energy supplier has asked you to send your meter readings, make sure you send them on or before the deadline.
For prep-paid customers, you do not need to do anything. You do NOT need to apply to benefit from the UK Energy Price Cap scheme, and you won’t need any vouchers.
The government works with your energy supplier to subsidize your energy bill.
Frequently Asked Questions
The energy price cap means that from October 1, 2022, and up to 2 years, you’ll pay a maximum of £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
You may not know, but your energy supplier charges you per kWh of energy you use. So, to calculate your bill, your supplier takes your meter reading (which is your total kWh of energy consumed) and multiplies it by the unit per kWh charge.
Ideally, since the war in Ukraine has caused the global energy prices to rise, it means that from October 1, 2022, you would have been paying more than £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
However, when the UK government guarantees that you will not pay more than this amount for the next two years. Your supplier will charge you these rates while the government pays the difference.
The UK energy price cap means that the UK government has capped what your supplier will charge you per unit of energy (in kWh) that you use. The UK government will pay the difference to your supplier.
So, your supplier will charge you based on the total units of energy you consume using the price cap of £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
This does not have a direct answer. If you can find a cheaper deal, by all means, fix it.
However, because of the instability of prices in the energy market, most suppliers may not offer any price guarantee deals at the moment.
The energy price cap of £2.500 is based on what the average UK household consumes. It does not mean that every UK household will pay £2.500 per year.
The actual price cap guarantee is the per unit kWh you pay which is £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
So, if you use more energy, you’ll pay more than the so-called price cap of £2.500.
I think people ask this question based on the assumption that the price cap is £2.500.
The price cap is rather the price you pay for each unit of energy and gas you consume.
The electricity price cap is £0.34 (34p) per kWh. However, the UK government has capped the per unit price at £0.103 (10.3p) per kWh for gas.
This means that you CAN NOT reach the price cap, in essence. Instead, your supplier will charge you based on your consumption multiplied by the per unit price cap charge.
So, if you consume more energy, you’ll pay more. If, on the other hand, you consume less energy, you’ll pay less.
Conclusion
The UK Energy Price cap is today’s hottest topic, October 1, 2022. Although this is not the type of topic we normally write about at Itechguides.com, I felt the need to contribute to the topic.
The UK Energy Price cap DOES not guarantee that all UK households will pay £2,500 per year from today. Rather, the UK government guarantees that a UK energy consumer will pay £0.34 (34p) per kWh for electricity and £0.103 (10.3p) per kWh for gas.
What this means is that the UK government will pay your supplier the difference in the per unit rate you would have had to pay. However, your supplier will still charge you based on the total units of energy you consume.
I hope I have been able to simplify this confusing topic for you. If you found the article helpful, click on “Yes” beside the “Was this page helpful” question below.
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