Energy price cap: what you need to know and how to save on your energy bills

To try to protect consumers from skyrocketing energy costs, a new energy price cap comes into force in October 2022. But what is an energy price cap, and will it really make a difference? What if you still cannot pay for your energy bills? Read on to discover practical tips and information.

• What is the energy price cap?
• Why are energy prices going up?
• How does the energy price cap affect me?
• Tips on how to save energy - and money
• What happens if I can’t pay my energy bill?
• Can I get help with my energy bill?

What is the energy price cap?

Officially known as The Energy Price Guarantee, this will cap the cost of each unit of electricity and gas, as well as the standing charge, so that a typical household in Great Britain will pay, on average, around £2,500 a year for energy, for two years from October 1st, 2022. The cap was introduced after months of mounting concerns about the rising energy costs in the UK.

The Department for Business, Energy and Industrial Strategy says that households will save £1,000 a year on average. How will this work? The guarantee limits how much suppliers can charge consumers per unit of gas or electricity. The Government will then compensate energy suppliers for savings delivered to households.

£150 of the £1,000 a year saving will come from suspending some environmental and social costs temporarily, such as green levies, from being passed on to consumer bills. Instead, the costs will be passed on to the Government.

Why are energy prices going up?

It’s all about supply and demand. The main reason consumers are paying more is because gas energy suppliers are paying more to buy gas on the global market. Energy suppliers started seeing prices rise after a cold winter in the northern hemisphere and higher than expected gas use as countries recovered from the Covid pandemic. This impact forced a number of UK energy suppliers into administration; by December 2021, around 28 energy firms had ceased trading.

Then Russia invaded Ukraine in February 2022. This exacerbated things considerably as Russia was a significant supplier of gas to the EU, pushing prices up further. Back in October 2021, letters sent by energy regulator Ofgem to UK customers showed that the energy price cap had increased to £1,277. But during 2022, and after another price cap rise in April 2022, there were fears that it would eventually rise to £3,549.

Charity National Energy Action estimated that the number of UK households in fuel poverty increased from 4.5 million to 6.5 million between October 2021 and April 2022. Many businesses across the country have also spoken out about how they are facing closure due to rising energy bills. The new Energy Price Guarantee was announced in September 2022.

How does the energy price cap affect me?

The energy price cap affects most households in the UK unless they are on a fixed rate tariff. Ofgem has exempted some standard variable green energy tariffs from the cap. There are also differences in Northern Ireland because of how the energy market operates.

The key thing to remember if your household is affected is that the numbers provided, even by the Government, are based on average usage. The latest figures provided by regulator Ofgem - which date back to 2020 - say an average British household has 2.4 people living in it and uses 2,900 kWh of electricity and 12,000 kWh of gas per year.

If you have more people living in your house, your energy bills are likely to be higher than this average. Even with the cap in place, your bills will continue to be influenced by how much energy you use. However, the Energy Price Guarantee does limit the amount you can be charged per unit of gas or electricity.

The Government’ energy bills support fact sheet states that from the 1st of October 2022, the average unit price for dual fuel customers paying via direct debit will be restricted to 34.0p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT. To consumers who use prepayment meters, the Energy Price Guarantee will be applied to the rate you pay for each unit of energy. Therefore, the money you put on the meter should last longer.

Tips on how to save energy - and money

First, take the time to understand your electricity bill. This will make it easier for you to control the amount of household energy you use. Then consider practical ways in which you could save money on your energy bills. These could include reducing the number of hot baths you take or using a timer to keep your showering time down. Both measures have the added benefit of saving water, too. Draught-proofing windows and doors will also ensure that less heat is lost through gaps around doors, windows, floors and even the chimney.

Most of our energy bills spend goes on heating and hot water. Turning down the thermostat, turning off radiators in rooms you aren’t using, and closing curtains at night are all ways to reduce the heating you use at home, and saving energy.

What happens if I can’t pay my energy bill?

Contact your supplier immediately. They will be required to work with you on an affordable payment plan under Ofgem rules. Customers on prepay meters who can’t top them up can also ask for emergency credit.

If you are struggling with debt, seek advice from experts at debt charities such as the National Debt line. They run a free helpline and have lots of valuable tools online too.

Can I get help with my energy bills?

Yes, you can get help with energy bills.

A £400 discount called The Energy Bills Support Scheme is being applied to all households from October 1, 2022. The payment will be split across six discounts between October and March 2023, and will be automatically applied to your energy bill.

In November, eight million households already receiving the winter fuel payment will be paid a £300 one-off Pensioner Cost of Living Payment. That will be on top of the winter fuel payment for people over state pension age, worth between £100 and £300.

Many energy suppliers also have energy funds or customer support funds. For example, British Gas is to pay its most vulnerable customers grants worth £750 to help with bills. Ask your supplier what is available and how to apply.

The British Gas Energy Trust has previously paid struggling households up to £1,500 - and you can be a customer from any supplier to apply for support.

Despite the cap, the energy crisis is not going away anytime soon. Winter 2022 will be difficult for many. However, there are many ways to be proactive in these instances, which in the long run, could help considerably. As well as experimenting with energy-saving tips at home, exploring ways to budget and manage your money more effectively, such as by using a prepaid card or switching bank accounts will allow you to feel more at ease with your finances.