Energy prices are continuing to rise, causing worry and anxiety for many whose bottom line is already stretched thin. It was announced today (February 27) that the Ofgem price cap will be set at £3,280.
However, the price cap is different from the Government’s price guarantee, which was introduced in October last year to deal with the rising cost of gas. The Energy Price Guarantee is set to be raised this spring.
But what is the difference between the price cap and the price guarantee? They sound the same but they are different, here’s everything you need to know.
Read more: Household energy bills to rise by £500 in April - despite Ofgem price cap falling by £1,000
What is the Ofgem Price Cap?
Ofgem, the British energy regulator, has set an energy price cap each year since 2019. It limits the maximum price that energy suppliers can charge for each kilowatt hour (kWh) of energy used.
The price cap concerns energy suppliers, such as Octopus, Scottish Power or British Gas for example, and not the oil and gas producers. Therefore the price cap is in place to ensure that the profits made by suppliers are limited.
Ofgem says: “The price cap is applied to customers on a default energy tariff. The cap ensures that prices for customers on default energy tariffs are fair and cost-reflective.”
How does the price cap affect my bills?
The price cap does not cap your total bill amount. The more energy you use, the more you’ll be charged.
What the price cap does is limit how much suppliers can charge you per unit. As such, when the cost of wholesale energy rises, the cap will rise to consider this.
At the moment, due to a number of factors, including the war in Ukraine, the price of gas is constantly changing. As a result, the amount that suppliers must pay to buy the energy we use has risen sharply and because gas is used to generate electricity, our household bills are rising too.
What is the Energy Price Guarantee?
Different from the price cap, the Energy Price Guarantee (EPG) was introduced by the Government in October 2022. This is designed to limit how much the average household in the UK will pay each year for gas and electricity. This means the Government is subsidising the cost of energy and limiting the amount suppliers can charge.
At the moment, the EPG aims to keep average household bills around £2,500 a year. However, this is just for average bills, depending on how much energy you use, your bills may be higher or lower than this figure.
What are the changes so far?
Ofgem’s price cap has decreased from £4,279 to £3,280. The latter figure indicates how much consumers on basic tariffs would pay if the EPG was not in place.
The EPG will rise from £2,500 to £3,000 in April, meaning that consumers will not pay the full level of the energy price cap. This change does mean that average energy bills will be around £500 more than right now.
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