What is the Ofgem energy price cap - and what does it mean for your bills?

The next price cap means energy bills will fall 12%. But what is the cap and what does it mean for you?

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The Ofgem energy price cap is announced every 3 months (image: Getty Images)
(Image credit: © Getty Images)

The next Ofgem energy price cap will see energy bills fall significantly, the energy regulator has revealed.

On 23 February, it announced a 12% fall in the energy bills maximum. Further significant drops in the cap are expected later in 2024 for the near-29 million households sat on standard variable tariffs.

What you'll actually pay for your energy is likely to be higher or lower than the price cap figure that'll be announced (the one Ofgem publishes is a national average). Your bills are determined by your usage, what type of house you live in, and where in the country you live, amongst several other factors.

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Since energy prices started to fall from their record highs in 2023, suppliers have started to introduce fixed deals again. These lock in the unit rates you pay for your energy, regardless of fluctuations in the cap and wholesale markets. Our 'Should you switch' article runs you through what to think about when considering a fix.

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 per kilowatt hour (kWh) for gas and electricity, along with standing charges, every three months. It is not a cap on your total energy bill, which will mostly be determined by your energy usage.

The cap currently applies to around 29 million households in England, Wales and Scotland. Northern Ireland has a tariff review process instead of a price cap.

Under the current price cap, which runs from 1 January until 31 March, the typical household would pay £1,928 a year. This figure is based on the probable energy consumption of a typical household, plus capped unit rates of:

Gas: 7.42p per kilowatt hour (kWh); 29.60p standing charge per day.

Electricity: 28.62p per kWh; 53.35p standing charge per day.

Under the April price cap, the unit rates will be:

Gas: 6.04p per kilowatt hour (kWh); 31.43p standing charge per day.

Electricity: 24.5p per kWh; 60.1p standing charge per day.

It's worth noting that these figures are averages as the exact amount you'll pay per kWh and for standing charges depends on which region of the country you live in.

These current figures also mean that, regardless of the amount of energy you use, if you have both gas and electricity, you’ll be paying more than £300 a year in standing charges alone. Ofgem is currently reviewing the results of a consultation into whether it should scrap the current system of standing charges.

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, suppliers almost entirely stopped offering fixed rate deals as a result of surging wholesale prices - an issue which led to dozens of providers going bust, including Bulb Energy. Those on offer tended to be much more expensive than variable rate tariffs. So, most households dropped onto these variable rates, which are governed by the price cap.

For much of the last two years, most of us have been paying the rates set by the Ofgem cap. The only time people didn't was from October 2022 to June 2023, when the government brought in the Energy Price Guarantee (EPG).

The EPG acted as a safety net after the Ofgem price cap was due to rocket even higher in the wake of Russia's invasion of Ukraine. Once wholesale costs, which are the biggest factor in the price cap's rate, fell below the EPG in July 2023, households once again found themselves on the variable rate.

Since then, fixed rate deals have returned - although they still struggle to compete with the Ofgem price cap. Energy consultancy Cornwall Insight says it could be the 2030s before competition means energy bills fall back to where they were pre-Covid.

When is the next Ofgem energy price cap announcement?

The next quarterly price cap announcement will be on 28 May 2024, and will cover what energy suppliers can charge between 1 July to 30 September 2024. The figure the regulator announces will be based on an assessment period for wholesale prices that runs from 16 February to 16 May 2024.

The cap is set four times a year. It currently stands at £1,928 for a typical household paying via direct debit.

 WILL ENERGY PRICES FALL?

According to the energy consultancy Cornwall Insight, the Ofgem energy price cap is due to fall again in July.

The firm, which has accurately predicted changes to the cap throughout the energy crisis, expects May's announcement to see a 13% (£225) fall in the cap. The annual figure is forecast to be £1,465.

It then anticipates the cap will rise by 4% (£59) in October. Of course, any big geopolitical changes - for example, a wider war in the Middle East - could change the picture significantly.

When Cornwall Insight updated its forecasts in early February, it's principal consultant, Dr Craig Lowrey, said: “Healthy energy stocks and a positive supply outlook are keeping the wholesale market stable. If this continues, we could see energy costs hitting their lowest since the Russian invasion of Ukraine.”

However, he warned that a return to pre-energy crisis gas and electricity bill prices “isn’t on the horizon”. He added: “Shifts in where and how Europe sources its gas and power, alongside continued market jitters over geopolitical events, mean we are likely still to face costs hundreds of pounds above historical averages for a while. Potentially, this is the new normal for household energy budgets.”

Henry Sandercock

Henry Sandercock has spent more than eight years as a journalist covering a wide variety of beats. Having studied for an MA in journalism at the University of Kent, he started his career in the garden of England as a reporter for local TV channel KMTV. 


Henry then worked at the BBC for three years as a radio producer - mostly on BBC Radio 2 with Jeremy Vine, but also on major BBC Radio 4 programmes like The World at One, PM and Broadcasting House. Switching to print media, he covered fresh foods for respected magazine The Grocer for two years. 


After moving to NationalWorld.com - a national news site run by the publisher of The Scotsman and Yorkshire Post - Henry began reporting on the cost of living crisis, becoming the title’s money editor in early 2023. He covered everything from the energy crisis to scams, and inflation. You will now find him writing for MoneyWeek. Away from work, Henry lives in Edinburgh with his partner and their whippet Whisper.

With contributions from