The Ofgem energy price cap has been setting gas and electricity bills for the majority of UK households for almost three years. But what exactly is it?
On Tuesday (1 October), it pushed energy bills up 10% (£12.50 a month, on average) due to a rise in wholesale prices. Costs are currently expected to remain at a similar level in January 2025.
The cap sets maximum unit prices for around 27 million households who are on a standard variable tariff (the type of energy product the price cap governs). The five million or so homes that are on a fixed rate deal - as well as some other less common forms of tariff - do not see their rates fluctuate in the same way.
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What you'll actually pay for your energy could well be higher or lower than the price cap figure that's announced every three months (the one Ofgem publishes is an average). This is because your bills are determined by your usage and where in the country you live, amongst several other factors.
Before any price cap change, it's worth taking an energy meter reading. You should do this even if your home has a smart meter, as it should guarantee that you won't get overcharged. And if you're concerned about keeping up with your bills this winter, you should get in touch with your energy supplier.
So, what is the energy price cap - and what does it mean in practice for your gas and electricity bills? We've explained everything you need to know.
What is the Ofgem energy price cap?
The Ofgem energy price cap sets the maximum unit rates energy firms can charge for standard variable rate tariffs. It caps the price per kilowatt hour (kWh) for gas and electricity, along with the standing charges for each fuel. It is not a cap on your total energy bill. What you'll pay is mostly determined by your energy usage.
It is set every three months, and is mostly based on wholesale prices. Supplier profit margins and network infrastructure maintenance costs are also used to set the rate.
The cap currently applies to around 27 million households in England, Wales and Scotland. Northern Ireland has a tariff review process instead of a price cap. Under the current cap, the average home will pay an annual figure of £1,717 (£143 a month). This is 10% up on the July price cap, which came in at £1,568 a year (£130 a month).
These averages are illustrative. The only figures that really count are the 10% figure and the cap's unit rates. The latter can vary depending on where you live in the country, as each region has a private operator which runs the mains networks. For the 1 October to 31 December cap, the average unit rates are:
| Fuel | Price per kilowatt hour (kWh) | Standing charge (per day) |
| Gas | 6.24p | 31.66p |
| Electricity | 24.50p | 60.99p |
Please be aware that these Ofgem figures are national averages, with your actual unit rates depending on where in the UK you live. You can find out more about prices in your area on the energy regulator's website.
One major criticism of the cap is how it sets standing charges. These fees are used by energy companies to pay for the critical infrastructure that powers our homes. But, they mean you pay around £334 a year before you’ve even used any gas or electricity. Ofgem recently conducted a consultation into whether this system of charges should be scrapped, with an announcement due imminently.
The energy price cap was initially put in place to protect vulnerable households. Before the energy crisis, you would only drop onto a variable tariff if you let your fixed deal expire and didn't switch to a new deal. To prevent consumers in this situation from being overcharged, Theresa May's government brought in the cap.
However, when the energy crisis hit in late 2021, almost all fixed deals disappeared from the market. This was down to surging wholesale prices, which meant dozens of providers went bust, including Bulb Energy. The fixes that were on offer tended to be much more expensive than variable rate tariffs.
So, most households dropped onto variable rates (and therefore, the price cap) when their fixes expired. The only time people didn't was between October 2022 and June 2023, when the government operated the Energy Price Guarantee (EPG).
The EPG acted as a safety net. It effectively subsidised suppliers so that consumers did not see their bills rocket when the Ofgem price cap soared in the wake of Russia's invasion of Ukraine. Once wholesale costs fell, and the Ofgem cap went below the rate of the EPG in July 2023, households once again found themselves on the price cap rate.
Since then, fixed rate deals have returned - although signing up to one is currently a risk given prices could fall in 2025. Energy consultancy Cornwall Insight says it could be the 2030s before energy bills fall back to where they were pre-Covid.
When is the next Ofgem energy price cap announcement?
The next big date for your diary is 25 November. On this day, we will find out what bills will look like between 1 January and 31 March 2025. The figure the regulator announces will be based on an assessment period for wholesale prices that runs from 18 August until 18 November 2024.
The next cap after the January one (running from April to June 2025) will be announced on or just before 25 February 2025.
Will energy prices fall?
Cornwall Insight, an energy consultancy that has accurately predicted the price cap for the past two years, expects the cap will fall slightly in January 2025.
But, with six weeks still to run on the wholesale price assessment period, we will not know for sure until mid-November. Any big geopolitical changes - for example, a further escalation of the conflict in the Middle East - could change the picture significantly.
The consultancy has previously warned energy prices could remain higher than they were in the 2010s until the 2030s. Principal consultant at Cornwall Insight, Dr Craig Lowrey, said his firm's latest predictions could mean the hike in the price cap rate could be merely a "blip".
He added: "There remains a further six weeks or so for the wholesale market to influence our forecasts, and while the negligible quarter-on-quarter drop is welcome, it must be remembered that bills will still remain hundreds of pounds above historic levels. While there is hope that a renewed focus on building a sustainable domestic energy supply could eventually lower bills as we reduce reliance on volatile imports, these benefits will take time to materialise. Meanwhile, many people are facing financial difficulties right now."
Lowrey called on the government to explore ways of shielding vulnerable people from high energy costs. This action could take the form of targeted support, or other ideas, like social tariffs.
Ofgem is currently consulting on the future of the price cap. The energy regulator has said it does not believe it is fit for purpose in the net zero age.
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