The UK’s energy price cap is decided by the energy regulator, Ofgem. The price cap limits the amount energy providers can charge per kilowatt hour (kWh) of energy consumed and is reviewed every three months. The total amount customers will pay for their energy bills is based on how much energy they actually use and the payment method they choose, with payment by direct debit being the most cost-effective choice.

Whilst Ofgem sets a price cap for UK energy providers, it is not responsible for the global energy sector. When wholesale gas prices increased exponentially from February 2022 in the wake of the war in Ukraine, Ofgem’s price cap steadily began to rise as a result. An Energy Price Guarantee was therefore put in place by the UK government from 1 October 2022 – 31 March 2023 and then extended to June 2023 to ensure that bill payers would not be unduly impacted by the rising energy price cap.

This price guarantee meant that the average annual payment for households with typical energy usage paying via direct debit for a dual electricity and gas bill would sit at around £2,500 (£2,109 in Northern Ireland where rules differ) versus Ofgem’s higher energy price cap, which rose to £4,279 from 1 January to 31 March 2023.

In the winter of 2022, the government’s Energy Bills Support Scheme also offered a £400 winter fuel supplement (£600 in Northern Ireland) to all households. The Demand Flexibility Service (DFS) offered further incentive for homes and businesses using less peak-time energy from November 2022 – March 2023 and the Energy Bill Relief Scheme offered a discount to 21.1p per kWh for electricity and 7.5p per KWh for gas for businesses and voluntary sector organisations. As of 1 April 2023, non-domestic customers received a discount on wholesale energy prices as opposed to the cost cap, with the discount amount dependent on energy usage. 

So, what happened after 31 March 2023?

As part of the Autumn Statement in November 2022, the Chancellor, Jeremy Hunt, extended the Energy Price Guarantee from 1 April 2023 – 31 March 2024. However, the average cost from April 2023 increased to around £3,000 a year.

The following assistance was also made available to some homeowners and businesses from 1 April 2023:

• A £900 supplement split across separate payments in spring 2023, autumn 2023 and spring 2024 for homeowners receiving means-tested benefits.  
• A £300 energy bill supplement for pensioners.
• A £150 energy bill supplement for homeowners receiving certain types of disability benefits.
• the Energy Bills Discount Scheme (EBDS) replaced the Energy Bill Relief Scheme to help businesses with their energy bills and will run from 1 April 2023 to 31 March 2024.

As of 1 July 2023, Ofgem’s Energy Price Cap fell to £2,074 a year for a typical dual-fuel household direct debit bills, falling below the government’s Energy Price Guarantee of £3,000 and essentially making it obsolete.

So, what is happening this winter?

From 1 October to 31 December 2023, Ofgem confirmed that the maximum amount energy suppliers can charge for default tariffs is set at £1,834 per year for a typical household paying by direct debit​​.

For those on standard variable tariffs, the electricity rate was capped at 27 pence per kWh, with a daily standing charge of 53 pence. Gas rates were capped at 7 pence per kWh, with a daily standing charge of 30 pence.

The cap is calculated using Typical Domestic Consumption Values (TDCVs), which are based on the average gas and electricity usage across England, Scotland, and Wales. This estimate typically reflects a household with 2-to-3 bedrooms and 2 to 3 occupants.

Households and businesses also have the opportunity to save money on their energy bills again this winter under the Demand Flexibility Service by shifting their energy usage to specified off-peak periods.

Unfortunately, whilst the government will continue to offer the winter fuel payment this winter – which offers support with heating bills of between £250 and £600 for those born before 25 September 1957 – there has been no repeat of the Energy Bills Support Scheme’s £400 winter fuel supplement for all households. This has the potential to leave many people worse off financially when it comes to their energy bills, despite the lower energy price cap from Ofgem.

What will happen in 2024?

Ofgem announced on 23 November that from 1 January to 31 March 2024 the energy price cap will increase by 5% to £1,928 a year for a typical household who use gas and electricity and pay by direct debit. This increase was said to be in response to suppliers once again facing higher wholesale costs.

There was no mention of a further energy bills support scheme in the Autumn Statement on 22 November 2023, with the Chancellor noting the increases to pension and benefit payments (8.5% and 6.7% respectively) which could compensate higher energy bills.  

So how does this impact UK households?

• EPG for households without pre-payment meters: Since 1 July 2023, these households no longer receive an EPG discount, as the Ofgem price cap is lower than the EPG level. The EPG will remain as a safety net until the end of March 2024 should prices exceed £3,000 per year​​.
• EPG for households with pre-payment meters: The EPG aligns costs for prepayment meter (PPM) and direct debit customers. Since 1 October 2023, the EPG discount for PPM customers is applied to standing charges rather than unit rates, ensuring fair support even for low usage customers. The standing charge discount is 4.5372p for electricity and 5.9432p for gas​​. The discount will be automatically applied to the meter-set price and reviewed every three months in alignment with Ofgem’s price cap changes​​.
• Households in Northern Ireland: From 1 July 2023, households in Northern Ireland no longer receive an EPG discount due to falling wholesale energy prices and different market operations. However, the EPG remains as a safety net until March 2024, in case of significant price increases​​.

Regardless of where we are in the UK and how we pay our energy bills though, there is support available. More information can be found at the link below.

www.ofgem.gov.uk/information-consumers/energy-advice-households/getting-help-if-you-cant-afford-your-energy-bills

There are also ways that all households can increase the energy efficiency of our homes and cut our energy bills. This includes small measures to improve insulation and draft proofing through to installing more energy efficient boilers and appliances.

For more advice on increasing your energy efficiency, head to the Energy Savings Trust website.