There’s been a lot of media buzz in the past week or so around the energy price cap rise that will come into effect this April. Amongst all the jargon and panic, it can be difficult to tell how this will impact on individual households and what it will mean for you. In this article, we explain some of the key points from last week’s announcement and provide some examples of how the price cap will impact on different households.
What is the energy price cap?
The price cap tracks wholesale energy prices and fixes a maximum amount that energy suppliers can charge for their energy. It was introduced by Ofgem in 2019, following concerns that many people were paying too much for their energy. Ofgem review the cap twice a year (usually in April and October). The price cap includes both the standing charge (a fixed daily amount you have to pay for energy, regardless of how much you use) and the price for each unit of energy (measured in pence per kilowatt hour, or p/kWh).
Since the price cap was last updated in August, there has been a huge increase in the price of wholesale gas, which the current price cap doesn’t take into account. This is why so many energy companies have been going out of business: they are spending more on providing your energy than they can charge. From April onwards though, they will be allowed to pass on these costs to customers.
Don’t be distracted by ‘averages’ – the sky is the limit
Many articles over the last week have referred to the average price cap and the average increase that households will experience in their bills, with many articles suggesting that most households will see their bill go up to around £1,971 per year. However, what’s really important here is the unit price cap. We all pay per unit of energy – and we each use thousands of them, which is why the price you’re paying per unit is the most important factor in determining the cost of your bill.
Let’s break it down: the new cap level isn’t the maximum amount of money you can be billed; the price cap sets a limit on the rates you pay for each unit of gas and electricity, so if you use more you’ll pay more. The table below shows the average unit rates and standard charges (which vary by region) under the current cap and the new cap from April.
| Current price cap (Until 31 March) | New price cap (from 1 April) | |
| Gas | Unit rate: £0.04 per kWh Standing charge: £0.26 per day | Unit rate: £0.07 per kWh Standing charge: £0.27 per day |
| Electricity | Unit rate: £0.21 per kWh Standing charge: £0.25 per day | Unit rate: £0.28 per kWh Standing charge: £0.45 per day |
These are the average price cap unit rates for customers with typical usage who pay by direct debit; however the changes demonstrate the rate at which the unit price is going to increase. The ‘cap level’ is easier to report than individual unit changes, which is why you’ll see it used more often.
Let’s ‘sum it up’
According to Ofgem, the average UK household uses 2,900 kWh of electricity per year. In simple terms, that means that if you’re paying the unit rate of £0.28 per kWh, your annual electricity bill will be £812. When it comes to gas, the average UK household uses 12,000 kWh, which means if you’re paying £0.07 per kWh, you’ll pay £840 per year. That’s a total gas and electricity bill of £1652, for a house of 2-3 people, using an average amount of energy (plus the standard charges mentioned below).
Here are some examples of how the price cap increase will impact on a range of households:
Electricity
| Usage | Average annual consumption (kWh) | Average annual bill* (£) | Average monthly bill* (£) |
| Low (flat or 1 bedroom house with 1-2 people) | 1,800 | 668 | 55 |
| Medium (3-bedroom house, with 2-3 people) | 2,900 | 976 | 81 |
| High (5-bedroom house with 4-5 people) | 4,300 | 1368 | 114 |
*Including an average standing charge of £164.25 per year.
It’s important to bear in mind that there are different ‘profile classes’ for electricity, which means that some meters have peak and off-peak rates. You can find more information on how this affects consumption on Ofgem’s website.
Gas
| Usage | Average annual consumption (kWh) | Average annual bill* (£) | Average monthly bill* (£) |
| Low (flat or 1 bedroom house with 1-2 people) | 8,000 | 659 | 55 |
| Medium (3-bedroom house, with 2-3 people) | 12,000 | 939 | 78 |
| High (5-bedroom house with 4-5 people) | 17,000 | 1289 | 107 |
*Including an average standing charge of £98.55 per year.
Due to the impact of Covid-19, Ofgem’s average consumption figures haven’t been updated since 2019. It’s worth reflecting on whether you’re using more energy since the pandemic (for example, spending more time at home) and how this might continue to impact your energy bills over the coming months.
What if I use a prepayment meter?
We’ve noticed that no one is really talking about how these changes will affect customers who use a pre-payment meter. Unfortunately, pay-as-you-go customers will see an even bigger increase to their bills than those on standard meter tariffs. 4.5 million UK households use prepayment meters, and they’re more likely to be used by people who are vulnerable, who have experienced previous issues with their energy or who may be on what’s classed as a ‘lower income.’
Whilst they can help with budgeting and repayments, prepayment meters are generally a more expensive way to pay for energy. Along with the energy used, pay-as-you-go customers also pay a standing daily charge for energy. Customers with a normal meter have to pay this too, but with a prepayment meter there has to be credit available to pay for it. Against the cost of living crisis, this could cause serious anxiety for households who use these meters, particularly if their income fluctuates. All of this means customers who currently use prepayment meters will see their bills go up even higher than most this April.
Many people will find it difficult to keep on top of their bills after April. For some this stress will feel almost routine, whilst for others the size of the price rise means it’ll be a new experience. Whatever position you’re in, we have a team of Energy Advocates who can help. They work across Gloucestershire, South Gloucestershire and Herefordshire, to ensure that no one has to struggle with their bills alone and everyone has someone in their corner. If you could use some help with your bills, repayments, prepayment meter or energy provider, or if you’re experiencing fuel debt, get in touch with our friendly team using the links above (depending on where you live).
Does a £200 rebate sound too good to be true?
The UK Government have announced what they’re calling an ‘upfront discount’ of £200 on energy bills that will come into effect this October. Whilst this initially seemed like a small but welcome step in supporting customers to cope with the rise of the price cap, it’s not as simple as it sounds.
Essentially, the £200 is a loan that will be applied to all electricity bills in England, Scotland, and Wales, regardless of whether you’d like to have this loan or not. Either your bill will be reduced by £200 or, if you’re on a prepayment meter, you’ll be given £200 in credit (either directly or through a voucher or cheque). Then, from next April, all electricity bills will be increased by £40 for the next five years, effectively as a repayment of this loan. There is no ‘personal loan’ to any individual, so if for example you’re currently living with your parents but you move into your own home next year, your bills will still be £40 per year higher.
It’s possible that some households will benefit from the £200 loan in the short term, as it will make October energy bills significantly lower (perhaps in time to free up a small amount of extra cash for Christmas). However, as bills are set to increase from April, by October most households will have already been paying significantly higher prices for their energy. Although £200 might seem better than nothing, it’s important to remember that the additional £40 added onto household bills from 2023 (and for four years after that) will cause an extra financial burden in a time of increasing economic uncertainty. We don’t know yet whether prices will come down in the next few years or continue to rise, further fuelling criticism of the rebate as a drop in the ocean when it comes to the true scale of energy price rises.
What can you do? Ways to save
As a result of the unit price being capped, the most important thing you can do to save money is reduce the amount of energy you use. If you reduce the amount of energy you use, you reduce the amount of units you’re paying for. Think about it like this; if your car only just scrapes through its MOT, you know it’s time to tighten the purse strings and start saving for a new one. If the washing machine is noisier than the kids on Christmas morning, it’s a sure sign you need keep a watchful eye on the little spends, so you’ll have some money spare when it needs replacing. The same ‘saving mindset’ can be applied to your energy – if you keep a watchful eye on the small ways you can save energy, it’ll all add up. You’ll soon notice ways that you can reduce your energy consumption, without having to make expensive or complicated changes to your home. If you can make small changes in your life, it’ll make a big difference.
Here are some simple ways you can reduce your energy consumption:
- Turn down your thermostat: turning down your heating by just one degree could cut your heating bill by up to 10%. Avoid using forms of electric heating if possible, as this is a more expensive way to heat your home than gas systems.
- However, try not to turn your heating down so low that your health and the health of your home suffers. It’s really tempting when times are tough to turn your supply off all together and just use the bare minimum. In the long run though, it’s important to make sure you stay well, for brighter times to come. We’ve put together some helpful advice on keeping yourself and your house healthy through winter.
- Turn things off: get into the habit of turning off appliances and lighting that you’re not using. Turn lights off when you go out of the room or during the day and don’t leave appliances like bathroom extractor fans on for long periods as they use a lot of energy.
- Keep an eye on your gadgets: if your phone or tablet battery has reached 100%, it’ll still keep using electricity. Try not to charge devices for long periods or overnight.
- Shrink your bills, not your clothes: ninety percent of a washing machine’s energy is spent heating the water, so wash your clothes at 30-40°C instead. This will help look after your clothes for longer and save you money.
- Keep the heat in and the cold out: insulation is one of the best ways of saving energy. Draughtproof your home wherever you can feel coldspots. We can often help fund this.
- Using the kettle: if you’re working from home, you’re likely to be drinking more hot drinks than ever before. Only boil the amount of water you need when making drinks or cooking.
- We’ve got a range of helpful guides and articles on our website, including advice on being energy resilient this year, buying and using appliances efficiently and busting some common energy myths.
Should I stay or should I go? Is now the time to switch provider?
In the past, we’ve often suggested that customers compare rates to find the cheapest tariff for them and switch to another supplier. However, with prices rising across the board this advice has changed for the time being. Previously, customers could make good savings on their energy bills by switching to a fixed rate tariff, which meant that the unit price you paid for your gas and electricity wouldn’t change for the duration of the plan (in a similar way to a fixed rate mortgage).
It’s only worth switching your supplier if you’re going to get a better rate, and at the moment those deals aren’t out there. The price cap will go up again in October and we don’t know yet what increase this will be (although there are some estimates that it could be as much as another 20% increase). If that happens, you’d have to find a deal that’s no more than 59% higher than the current price cap. According to MoneySavingExpert’s Martin Lewis, the best deal on the market right now is still 68% higher than the current price cap, which means it’s an even worse deal than sticking with the current price cap.
This may all sound very complicated, and to some degree it is. But what it means for customers right now is that it’s better to stick with your current supplier rather than go looking for a better deal, even if the current media storm is making you concerned.
If you’re struggling to keep up with rising energy prices, we’re here to help.
Speak to one of our Warm and Well advisors for advice on a range of energy topics. There is often grant funding available to help you make your home more energy efficient, including installing boilers, insulation and central or low-carbon heating. If you’re based in Gloucestershire or South Gloucestershire, call us for free on 0800 500 3076. If you’re Herefordshire based, call us on 0800 677 1432.
If you’re struggling to manage or understand your bills – especially in the face of rising prices – and are worried what this year will hold, our Energy Advocates have your back. If you don’t know where to start and are battling with anxiety produced by your home energy, they will help you feel in control. Many people will find it difficult to pay their energy bills for the first time this year. It’s estimated that for every 1% increase in energy bills, 40,000 more households will be pushed into fuel poverty. If we take the 54% price cap increase as a guide, that means 2.1 million households will find themselves in this position after April, and we expect the true figure to be much higher. If you’ve never had to reach out for help before, we want you to know that there’s support available and that you won’t be the only one who needs it. These are unprecedented energy times, so make the most of the support that’s out there and get in touch. If you’re based in Gloucestershire and South Gloucestershire, you can use the link here. If you’re based in Herefordshire, get in touch with our Energy Advocates using this link.
