Under the Domestic Gas and Electricity Bill, energy regulator Ofgem will cap both standard variable tariffs (SVTs) and default energy tariffs later this year. These tariffs are currently some of the priciest rates in the market.

The Competition and Markets Authority (CMA) found that consumers have been overpaying energy suppliers an average of £1.4 billion a year.

The UK energy price cap and energy switching in 2019

According to Energy UK, British customer energy switching levels have risen by 12% in the first quarter of 2019 compared with the same period last year – this despite critics saying that the energy price cap could deter people from comparing providers and switching.

  • More than 615,000 customers switched electricity supplier in March 2019 (up 29% on March 2018)
  • Over 1.45 million energy switches took place from the start of January to the end of March 2019 (up from 1.3 million over the same period in 2018)
  • 43% of the switches in March 2019 were from large to small and mid-tier suppliers
  • 11% of switches were from small and mid-tier suppliers to large suppliers
  • Small and mid-tier suppliers now control around 20% of the market, an increase of 1% from around seven years ago.

What is the energy price cap?

Energy price caps are put in place to limit the price an energy supplier can charge you per kWH of electricity and gas. The energy unit cost is capped, but not the total bill, which will vary depending on how much enegy you use and the kind of contract you’re on.

When did the energy price cap start?

The UK’s energy price cap started on 1 January 2019.  Energy caps are updated twice a year in February and August to reflect the price cap levels that come into effect in April and October.

Why the energy price cap?

In 2018, energy regulator Ofgem was told to set the price limit after lawmakers said customers (especially those on the most commonly used standard tariffs) were being overcharged for gas and electricity. Prime Minister Theresa May went as far as to call the tariffs a “rip-off”.

With the price caps in place, customers who are not active in the market when it comes to switching suppliers and negotiating energy deals are protected from paying unfair energy prices.

What are Standard Variable Tariffs (SVTs)?

SVTs are the energy supplier’s default or most basic tariff. If a customer hasn’t chosen a specific energy contract after their existing energy contract has come to an end, they will be switched onto an SVT by default. This is why it’s so important for energy consumers to switch to a new energy contract(and potentially save money in the process) when their existing contract ends.

At the moment, there are about 12 million UK households are currently on default SVT tariffs. Prime Minister Theresa May said: “For far too long older people, hard-working families and those on low incomes have been subject to rip-off energy tariffs. Our energy price cap will protect households from unfair price rises in time for this winter when people can feel the pinch more acutely. We know that the cost of living is still a challenge for some families and today marks an important step in helping people to keep more money in their pockets.

UK energy price cap 2018 update:

Energy prices are on the rise once again. Soon after UK energy regulator Ofgem announced the launch of the energy price cap, they increased the cap level for the second time this year due to higher wholesale costs.

The new energy price cap is designed to protect energy consumers from being overcharged, but energy costs look to be on the rise once again after Ofgem raised the variable tariff cap by £47 per year. Ofgem’s safeguard tariff will rise to £1,136 in October for those who pre-pay for their fuel.

The rise in the energy cap comes after a series of price hikes from the UK’s biggest energy suppliers.

UK energy price cap by region

Gas and electricity prices have always varied by region. For example, customers in the South West currently pay an average of  £49 per year more for gas and electricity than those the East Midlands, the cheapest region.

Region Ofgem price cap
Yorkshire 1111
East Midlands 1112
North East 1115
Scottish Power 1126
North West 1129
London 1130
Eastern 1132
Midlands 1135
South Wales 1142
Southern 1147
Scottish Hydro 1155
Manweb 1159
South East 1159
South West 1173
Average 1137

How much are the UK energy price cap 2018 increases?

  • February: £57 increase in the tariff
  • Latest: £47
  • This means that the cap has gone up by over £100 this year

CEO of Ofgem Dermot Nolan said: “Any price rise for customers is unfortunate. But while the level of the tariff will rise in October, these customers can be confident that this increase is justified and that their energy bill reflects the real cost of supplying gas and electricity.”

Already, all of the Big Six energy providers have increased their prices this year – some more than once. Read more about the Bix Six energy price hikes here.

All energy suppliers’ SVTs will have the same energy price cap, but the cap amount may vary between:

  • payment methods
  • fuel
  • meter types

British Gas price increase adding fuel to customer concerns

British Gas’ parent company, Centrica, recently announced a price increase of 3.8%, affecting 3.5 million customers. The increase in standard variable tariff (SVT) from 1 October will cause the average bill to rise by £44 to £1,205 a year.

Customers unaffected by the price hike are 2.4 million customers on fixed rates and those who became customers in March when the SVT was withdrawn.

Why are energy prices increasing?

  • 20% increase in wholesale energy costs (British Gas quotes figures that since April this year, electricity prices have increased by 18% and gas prices have increased by 21% and in the wholesale market).
  • The cold winter weather depleted gas store and gas production.
  • The UK depends on gas to power electricity generators, which means that electricity prices are closely linked to gas prices.

Energy price cap UK – update

According to The Times, an analysis of the 30 best annual dual-fuel tariffs on the market found that these tariffs have risen on average from £864 to £1,042 – £178 more expensive than at the same time in May. Energy suppliers have increased the prices of their cheapest deals by 21% in five months.

What is the effect of the price cap on suppliers?

As reported by The Guardian, German energy company E.ON will be cutting around 500 jobs in the UK. The company blames the needs to reduce costs on the upcoming energy price cap UK.

Are there any concerns about the energy price cap?

Benefits aside, the Domestic Gas and Electricity Bill is not without some concerns:

  • The price cap could make energy tariffs more expensive if energy companies look to offset the revenue lost on lowering SVTs.
  • Customers may no longer feel obliged to shop around for energy tariffs.

What can consumers do?

Customers should still look to switch and save

Even though the energy price cap will prevent people from paying exorbitantly high SVTs, energy consumers should still be proactive when it comes to energy procurement. At Smarter Business, we’ve found that our business customers can save up to 40% by shopping the market and switching to cheaper energy contracts. Households in the UK also stand to save by switching energy providers. Thus, Ofgem needs to make it clear that the energy price cap is a temporary solution and that the best deals on energy are to be found by comparing quotes from various suppliers.

Read more on Gov.uk

The easiest way to avoid falling victim to increasing energy prices is to switch suppliers and secure a fixed-rate tariff. Customers can radically change the amount they pay, simply by taking action and choosing a better deal.

Smarter Business can take the hassle out of shopping the market and comparing quotes for businesses of all sizes.

Contact a Smarter Business energy expert today to switch suppliers and save money!