What Is the Energy Price Cap?

Energy prices have been up and down in the UK over the past few years, and the energy price cap plays a crucial role in protecting consumers from extreme volatility. This initiative from the Office of Gas and Electricity Markets (Ofgem) limits suppliers in how much they can charge per unit of gas and electricity. While it doesn’t cap a consumer’s bill, it protects the rates per unit, which ultimately helps save money.

Understanding the energy price cap will help you better understand your monthly bill if you’re on default or standard variable tariffs, and it will also help you better manage your household budget.

The Ofgem energy price cap is a regulatory protection that safeguards customers from being overcharged by energy suppliers. The cap defines a maximum daily standing charge (flat-rate fee) and a maximum unit rate (per kWh unit of energy) for electricity and gas, requiring all suppliers to keep their rates at or below these set limits. 

The price cap is not fixed and is revisited every quarter to reflect energy market trends, so it may go up or down based on the data. Still, the cap ensures fair pricing on the average monthly UK electric bill while allowing suppliers to reasonably recover their operating costs.

The energy cap limits how much a supplier can charge for their default tariff, including the standing daily charge (fixed amount paid no matter how much energy is used) and the unit price, measured in pence per kWh. A default energy tariff is the most basic tariff offered, with a standard variable tariff being the most common. With this model, how much you pay varies, but it can’t be higher than the price cap.

The cap is based on typical usage, not individual consumption, so your actual bill may be higher or lower based on the amount of energy you use. The average use level used in calculations is 2,700 kWh of electricity and 11,500 kWh of gas annually. Ofgem uses these averages to help show how the price cap would impact the average household.

For example, the current price cap is set at £1,849 per year for an average household that pays via Direct Debit. However, you may pay more or less depending on your usage, home age and insulation, and any renewable energy sources you use to supplement grid power, like the EcoFlow Power Ocean (Single-Phase). A system like this allows you to avoid grid power during peak times, which is typically more expensive. It’s another way to insulate yourself from the impacts of rising energy prices.

The price cap is calculated using different data points, such as wholesale energy costs, environmental and social obligation costs, energy transportation costs, and supplier profit margin. All these factors are considered to set a fair price that reflects real-world costs and doesn’t create excessive supplier profits.

Other things that go into the Price Cap include:

• Network costs relate to building, maintaining, and operating the pipes and wires that carry gas and electricity to households.
• Operating costs refer to billing and metering services, such as smart meters.
• Policy costs support the social and government schemes that help reduce emissions and encourage renewable energy.
• VAT is set at 5% and added to the price of all tariff rates.
• Earnings or EBIT (Earnings Before Interest and Tax) allow for a fair rate of return for suppliers, typically 2% of a typical bill.
• Payment method costs cover accepting direct debits, quarterly billing, and prepayment.

Ofgem also considers unexpected market volatility. Since the cap is only recalculated every three months, this buffer allows for sudden spikes in energy prices so suppliers can remain solvent without adding unnecessary burdens on consumers. Ofgem can also add unexpected costs, such as high debt levels in the energy market.

The price cap changed on April 1 to £1,849 per year, an increase of 6.4% from the previous cap of £1,738. The per unit and standing charges for electricity increased from 14.86 pence per kWh to 27.03 pence per kWh and decreased from 60.97 pence daily standing charge to 53.80 pence daily standing charge.

These figures offer general guidance, but the rates you’ll pay may vary depending on where you live, what kind of meter you have, and how you pay your bill. For further insight, Ofgem provides detailed data on regional energy price caps.

The unit rates and standing charges vary depending on how you pay your electric bill. Prepayment is the cheapest option, direct debit is the mid-priced option, and payment upon receipt of the bill is the most expensive.

Here’s how your payment method impacts the price cap that is relevant to you.

Since its introduction, the energy price cap has seen highs and lows. The lowest price cap was during winter 2020/21, at £993 for average bills, while the highest was January-April 2023, at £4,279. It has evened out since mid-2023, with the price gap generally staying within £1500-£2,000.

When it was first used, it helped curb exploitative pricing structures, but after the 2021-2022 energy crisis, the cap increased drastically to reflect the skyrocketing price of wholesale energy. Prices have generally come down since summer 2023, though there is still some volatility.

Predictions on upcoming price caps show a slight decrease from the current cap, down to £1,755 next quarter and slightly up to £1,795 for the last quarter of 2025.

No matter how you pay your bills, the price cap applies to anyone on a default energy tariff. A default tariff might have a different name depending on your energy suppliers, so you can always ask them directly if you’re unsure what tariff you’re on. 

It applies to anyone connected to the grid on a default tariff. That means even if you don’t often use grid power because you have a solar power solution like an EcoFlow Home Battery, but you’re still connected to the grid, at least the daily standing charge price cap will apply to you.

That doesn’t mean investing in solar is a bad choice, however. Solutions like the EcoFlow PowerOcean DC Fit can be added to existing solar setups to store energy that you can use during peak hours, helping you reduce your grid power usage and save. Solar arrays, generators, and batteries have a significant upfront cost, but once the solar payback period is over, you’ll get access to free, renewable solar power.

The energy price cap does not apply if your plan is on a fixed-term energy tariff, using a fixed unit price and an end date. It also is not applicable if you’re on a specific type of tariff, such as a special time-of-use tariff or green tariff.

Don’t know what tariff you’re on? You’re most likely on a standard variable tariff if you were moved to a new supplier after your original one went out of business or if you’ve reached the end of a fixed-term contract. Additionally, if you've never switched your energy tariff, you will have always been on the standard tariff. Moving into a new property also usually places you on a default or standard tariff.

For other circumstances, it’s best to check directly with your supplier.

No, if you’re on a standard variable tariff, you cannot be charged more than the energy price cap for your daily standing charge and per-unit rate. However, you can be charged more than the energy price cap if you’re on a fixed-rate or special tariff plan.

Your electricity standing charge may be above the general price cap based on regional differences, which reflect minor fluctuations. Still, suppliers are bound by average caps throughout the country. If your charge is above the price cap for other reasons, you may not be on a standard variable tariff.

It applies to households on default or standard variable energy tariffs—typically those who haven’t switched in a while. If you’re on a fixed-term deal or a special tariff exempted by Ofgem, the cap won’t apply.

Ofgem’s energy price cap protects UK households from an uncertain energy market and potential extreme volatility. It prevents unfair pricing and excess supplier profits, but it can’t reduce your total bill. Your usage and lifestyle choices determine how much you pay monthly, with specific rates limited by the price cap. 

Smart home energy systems like the EcoFlow Power Ocean (Three-Phase) allow you to reduce your dependence on the grid, take advantage of solar energy, and beat the variable price cap. Though Ofgem controls the price cap, you can significantly control your energy costs by investing in solar solutions, which provide long-term savings and sustainability.