In an official announcement last month,Ofgem, the Office of Gas and Electricity Markets, the government regulator for Great Britain detailed a raise on the energy price cap, which will go from £1,137 to £1,254 for customers on the default tariff.
What is an energy price cap?
Energy price caps are insurance for consumers that they are paying a fair price for energy, including gas and electricity. The caps limit how much suppliers can charge per unit of energy and are based on the cost calculated by Ofgem that energy suppliers spend to supply you with energy.
Your energy bill will still vary, even with a cap, as it is based on your usage, which goes up and down with the seasons and other factors. If the costs to supply energy to you go down, the caps make sure that the suppliers pass on the savings to you.
If the costs rise, your energy bill will go up, but you have the assurance that the cap is in place protecting you from being overcharged per unit of gas or electricity.
What is a default tariff?
The default tariff protects consumers who are on a standard variable energy tariff or if they have not chosen a tariff at all. The default tariff began on 1 January 2019, and is a temporary cap on the standard variable tariffs and the fixed term default tariffs. Default tariffs are typically the most expensive when compared to fixed tariffs.
What is a fixed tariff?
Fixed or fixed-term energy tariffs, are subject to specific terms and conditions under contract. Typically locked in for a one-year period or more, fixed tariffs are not protected by the price caps as they are contractually fixed at a unit price, essentially forming their own “cap”. Fixed tariffs are typically a good value for most consumers.
What does the rise mean for me?
The analysis performed by Ofgem on the costs to deliver energy to consumers has indicated a raise, and this is being passed on to consumers as per the cap agreement. Adjusted twice per year, the next adjustment, either up or down, is due in August for the period commencing 1 October.
Customers paying a default tariff are going to see an increase in their energy bills, unfortunately. This reflects higher oil prices, higher demand, increased network costs, increased policy costs, and other factors that have affected wholesale costs.
What can I do to combat the raise?
If you are already under a cap, you have agreed that you understand it will go up and down, but trust that it is a fair price to pay for your energy units. You can find a better deal by comparing and switching your gas and electricity supplier.
In fact, you could save up to £390 per year just by switching to another supplier. It pays to take action and shop around, even for electricity and gas. It only takes minutes to find out how much you can save and just a few more to switch suppliers and start saving before the increase goes into effect.
Moving suppliers is the fastest, easiest way to save money on your energy bill. It only takes a few minutes, and you can compare prices any time, not just when there is a rise in the price cap.
After you switch, maximize your savings even more by making sure your home is well insulated, and that your boiler and major appliances are the newest, most efficient models. Be sure to submit your meter readings regularly, as not doing so can result in inaccurate bills, most of the time in favour of the supplier.
Get the whole family to commit to saving energy by turning down the thermostat, reducing shower time, and turning off lights and computers when not in use. Just a few small changes can make a world of difference in your energy bill.