The Energy Price Cap 2020

03

Sep

The Energy Price Cap 2020

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The energy price cap explained.

Being on a standard variable, or supplier’s ‘default’ tariff, means that, at the discretion of your supplier, your per unit energy prices may fluctuate. In the past it was not uncommon for customers on these plans to experience a sudden hike in prices, inevitably causing them budgeting issues.

As a way of protecting customers on these plans, on the 1st January 2019, Ofgem, the energy market regulator, introduced the energy price cap. The price cap sets a limit on the amount a supplier can charge domestic customers per unit of energy and in turn dictates the maximum amount that should be charged to a typical household over a 12 month period. It also sets a maximum on the daily standing charge.

It is worth noting that the cap is not necessarily the maximum amount you will pay as a household. The cap applies to the units of energy and is calculated based on the average usage of a typical household and therefore, if your household uses more energy than the average, your expenditure will also be inevitable.T

What is the current energy price cap?

Ofgem currently have the energy price cap set at £1,126. Energy price caps are reviewed every 6 months, with the last review having taken place on 1st April 2020.T

What is changing?

Ofgem recently completed their 6 month review and announced that as of 1st October 2020 the price cap has been lowered to it’s lowest ever limit of £1,042 – A fall of £84.

What does this mean for me?

Ultimately, the energy price cap means that whilst on a standard variable or supplier default tariff you are protected from sudden, significant rises in unit prices above a set limit. This means you are able to rest assured that you are protected from being overcharged.

However, you should consider whether a standard variable or supplier default tariff is the most suitable for you.

Most people find themselves on one of these tariffs as a result of their fixed term plan coming to an end, or taking over a property and not performing an energy comparison and switch. Whilst the energy cap on these plans provides an element of reassurance, they are generally still the most expensive type of energy tariff to be on. It is highly likely that you will save yourself money by shopping around for the most competitive plan for your circumstances.

The same applies to people on prepayment meters. Assuming you pass a credit check, you may find you save yourself considerable amounts of money by performing a comparison and switching to paying your bills by direct debit.

Is there a cap for prepayment meters?

Yes. A cap for prepayment meters was first implemented in April 2017 under the same guidelines as the cap for standard variable or default tariffs.

For a typical household with average usage, the cap currently sits at £1,164. Ofgem have announced that there will be a fall of £94 in the prepayment energy cap as of 1st October 2020, reducing it to £1,070.

What if I’m on a fixed rate tariff?

There is no price cap for fixed rate tariffs as these are already more often than not cheaper, however, there is also no need to worry…

As a fixed rate customer, when you enter into an agreement with your chosen supplier, the unit rate agreed is ‘locked in’ for the duration of your plan, naturally protecting you from energy price rises.

Once the term of your agreement is complete, you can once again compare rates from a variety of suppliers and choose to switch to a better deal, should you find one.

How do I perform an energy comparison and switch tariffs?

At Utility renewals we can do this for you.

Simply contact us via the link below and not only will we find the best possible tariff to suit your circumstances, but we will also handle the entire switch on your behalf.

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