​​​​​​​What is the energy price cap?

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The energy regulator Ofgem has announced that the price cap will fall to £1,568 for Direct Debit dual-fuel customers on a standard variable tariff from 1 July 2024. This figure uses Ofgem’s definition of ‘average energy use’ known as the Typical Domestic Consumption Values (TDCV). Ofgem sets the maximum amount that suppliers can charge for each unit of electricity and gas but not the total bill, so if you use more, you will pay more.

Did you know that we have a tariff with prices that stay below the price cap? Our Next Pledge tariff costs less per unit than the price cap unit rate, whether it goes up or down. With our Next Pledge tariff you’ll get energy prices guaranteed to stay £50 below the Ofgem price cap. T&Cs apply. Get a quote today.

The government’s Energy Price Guarantee (EPG) ended on 31 March 2024. Residential customers' bills are determined by the price cap from 1 April 2024.

Ofgem’s July 2024 price cap has been announced, so we thought it would be the right time for a quick refresher. Understanding your energy prices can feel confusing, especially over the past year when there have been so many changes. That’s why we’ve broken it down for you. Plain and simple.

What is the price cap?

Simply put, the price cap is the maximum price per unit that your energy supplier can charge you for your energy. It also includes the maximum they can bill you for your standing charge too. The price cap figure is an average, you will pay more or less depending on your energy consumption. The specific unit rates each customer sees will vary by region and payment type.

Price cap explained.

Understanding your energy prices can feel confusing. That’s why we’ve broken it down the energy price cap for you in this video. Plain and simple.

The government introduced the price cap in 2019. It is set by the energy regulator Ofgem and reviewed four times a year.

What is changing in the July 2024 price cap?

Ofgem has announced the price cap is changing on 1 July 2024. Standing charges also vary depending on the method of payment and the region you live in, but the average rate will remain unchanged for customers. Ofgem has changed their definition of ‘average energy use’. Ofgem’s old definition of average energy use, known as the Typical Domestic Consumption Values (TDCV) has changed to more closely reflect the current average energy use. Typical annual household consumption is now estimated to be 2,700 kWh a year for electricity, and 11,500 kWh a year for gas. Learn more about Ofgem’s average electricity and gas usage.

How is the price cap calculated?

The price cap is calculated based on multiple factors that make up the cost of supplying your energy. However, wholesale energy prices are usually the main one that affects changes. In fact, wholesale prices are responsible for around 75% of the cost of the average energy bill (on tariffs equal to the price cap)*.

What makes up the price cap:

Wholesale prices.

These are prices that suppliers like us typically pay when buying gas or electricity to supply our customers. The supplier purchases energy for their customers on the wholesale market far in advance of when they need to supply that energy to you.

Adjustment allowance.

This is an allowance for any unexpected extra costs that may arise, such as from supplier failures.

Operating costs.

These represent the costs to your supplier to deliver its services to you. They include sales, metering, billing, and general customer service costs.

Network costs.

These costs are for maintaining, running, and upgrading the gas pipes and electricity cables that carry energy across the country into your home or business. Network companies charge your supplier an Ofgem-regulated price for using the energy network.

Policy costs.

These costs relate to government led social and environmental schemes, such as the Feed in Tariff and Renewable Obligations schemes which are designed to help reduce emissions, save energy and encourage the transition to renewable energy.

VAT.

Value Added Tax is set at 5% for energy bills.

Payment method costs.

Ofgem have set a Payment Method Uplift, to account for the additional costs associated with providing service to customers who don’t pay by Direct Debit. This is also why it is often cheaper to pay for your energy by Direct Debit.

Smart.

The government is committed to making sure all households and small businesses can benefit from smart meters as soon as possible. The smart meter rollout allowance was introduced in June 2020, to help cover the cost of supplying them to customers. Interested in getting one in your home? Learn more about the benefits of smart meters and book your installation.

Smart meter customers have their say.

See what our smart meter customers say about their experience with smart meters. Meet Elizabeth & David who call their smart meter a 'brain in a box' and they use it to better monitor how much they spend on their energy.

Headroom allowance.

This is a small extra allowance for uncertainties in the costs incurred by suppliers.

Earnings.

Ofgem accounts for a fair rate of return for energy suppliers within the price cap. This makes up around 2% of the average bill*.

Support with your bills.

We want to reassure you that we are dedicated to helping you where we can. We have put together some helpful resources where you can access support from us, charities and the government.

Contact our Energy Specialists if you’re having difficulty.

Our Energy Specialists are here to help you if you’re concerned about your energy bills or need advice with moving. If you’re struggling to pay, please visit our help page to find out more about how we can support you. You can reach out to our Energy Specialists for personal advice on WhatsApp.

Feel the Community power.

The E.ON Next Community is a space for customers just like you, to share experiences and offer advice. Find support or suggest your own energy topics, plus get involved in discussions on the latest energy news.

Join the conversation

*https://www.moneysavingexpert.com/utilities/what-is-the-energy-price-cap/#:~:text=The%20price%20cap%20is%20calculated,cap%2 0from%201%20January%202023

Next Pledge tariff terms & conditions:

Next Pledge tariff can provide up to £50 savings, applied as a reduction on unit rates split across both electricity and gas (£25 saving per fuel) based on an Ofgem typical medium usage. Next Pledge is a 12 month fixed term tariff with prices changing to stay below price cap every three months. Requires payment by Direct Debit and a Smart meter installation where possible. This tariff comes with an exit fee of £25 per fuel.

Published 24/08/2023
Edited 24/05/2024