The Ofgem energy price cap has been setting gas and electricity bills for the majority of UK households for more than two years. But what exactly is it?
From 1 July, it pushed energy bills down 7% to their lowest level since the start of the cost of living crisis. The previous price cap, which was announced on 1 April, saw energy bills fall by 12.3% compared to the first quarter of the year.
Further significant drops in the cap had been expected later in 2024 for the 28 million households who are on a standard variable tariff (the energy product the price cap governs). But a double-digit hike in prices is now expected to hit billpayers from October.
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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 a national average). This is because 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.
Since energy prices started to fall from their record highs in 2023, suppliers have started to reintroduce fixed deals. These lock in the unit rates you pay for your energy, regardless of fluctuations in the cap and wholesale markets. But most of them struggle to compete with the cap on price.
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 28 million households in England, Wales and Scotland. Northern Ireland has a tariff review process instead of a price cap. Under the previous price cap which ran from 1 April until 30 June, the typical household paid the equivalent of £1,690 a year (£141 a month).
Under the new July energy price cap, which sits at an annual figure of £1,568 (£130 a month) and runs until the end of September, the unit rates are:
| Fuel | Price per kilowatt hour (kWh) | Standing charge |
| Gas | 5.48p | 31.41p |
| Electricity | 22.36p | 60.12p |
It's worth noting that these figures are national averages. The exact amount you'll pay per kWh and for standing charges depends on which region of the country you live in. This is because different network operators operate in different parts of the country, and face different costs when it comes to supplying homes with power and maintaining energy infrastructure.
Energy costs were predicted to fall by 13% (£220 a year or £18 a month) this summer. But instead, it came in £100 a year higher than what was initially forecast by experts, due to an unexpected increase in standing charges, which Ofgem attributed to “increasing network costs”.
This means you’ll be paying around £334 a year in standing charges before you’ve even used any energy. 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 in small numbers - although they are still struggling to compete with the Ofgem price cap. 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 quarterly price cap announcement will be on 27 August 2024 and will cover what energy suppliers can charge between 1 October and 31 December 2024.
The figure the regulator announces will be based on an assessment period for wholesale prices that will run from 17 May to 17 August 2024. The next cap after the October one (running from January to March 2025) will be set on 25 November 2024.
Will energy prices fall?
Cornwall Insight, an energy consultancy that has accurately predicted the price cap for the past two years, expects an uptick in wholesale prices that will see the cap soar 10% in October. It would mean that an average household would see their bills rise to £1,723 a year - slightly more than the April price cap.
The consultancy expects prices to remain high into the first quarter of 2025. Of course, any big geopolitical changes - for example, a wider war in the Middle East - could change the picture significantly.
It has previously warned energy prices could remain higher than they were in the 2010s until the next decade. Principal consultant at Cornwall Insight, Dr Craig Lowrey, said his firm's latest predictions demonstrated the "continued volatility of the market" and urged the parties currently out campaigning for the general election to find a solution to high energy bills.
He said: “It is clear the cap in its current form is not going to bring down bills to pre-crisis levels. However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future.
“Beyond bill reform, we must address the underlying transformations needed in the energy market. Short-term fixes to bills, even significant ones, have limitations, and long-term stability will require a commitment to the net zero energy transition. Only through removing our reliance on volatile imports, can we truly get a grip on bills and deliver a sustainable, secure, and stable energy future for all."
Ofgem is currently consulting on the future of the price cap. The energy regulator has said it does not believe it will be fit for purpose in the net zero age.
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