Energy prices fall as price cap starts – but don’t be fooled, most will still overpay

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How does Ofgem’s energy price cap work?

Initially announced in October 2017, its aim is to reduce the amount consumers have been overpaying energy firms, previously estimated at £1.4 billion a year.

The energy price cap limits the amount a supplier can charge customers who are on its  standard or default tariffs, which you’ll likely be if you’ve not switched recently. The cap sets a maximum level for each unit of gas and electricity you use – and a maximum daily standing charge (what you pay simply to have your home connected to the grid).

This means a typical user on a standard variable or default tariff would pay a maximum of £1,137/year on average, paying by monthly direct debit, or £1,221/year for non-direct debit households â€“ though your maximum will vary depending on where you live and how much energy you use. See our regional price news story for more information.

Yet this is just the initial level. The cap is set to be updated at the beginning of April (and again in October), and with wholesale energy prices rising over the last year, Ofgem has warned it may need to reflect that rise when it revisits the cap in April. 

It will continue to be reviewed twice a year until 2020, when Ofgem will recommend on an annual basis if it should continue up to 2023.

What are standard variable and default fixed tariffs?

A standard variable tariff (SVT) is an energy supplier’s ‘default’ tariff. The costs are variable, so the rate you pay can go up or down depending on wholesale energy costs – what suppliers pay for gas and electricity – and there are no exit fees or a fixed end date.

If you’re on a fixed tariff and your deal ends, you’ll most likely be rolled onto your supplier’s SVT if you do nothing.

However, since 2017, Ofgem has allowed firms to move customers automatically onto default fixed tariffs â€“ provided there were no exit fees and the tariff is the same price or cheaper than the SVT. These tariffs will also be covered by the cap, though fixed rate tariffs that you’ve elected to switch to are not.

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