Energy bills are set to increase for millions of UK households from April, as Ofgem's Price Cap has been announced.
Ofgem's said its Price Cap would be £3,280 from April which means it is still higher than the Government's Energy Price (EPG) Guarantee.
Households are currently covered by the Government's Energy Price Guarantee which was introduced in October last year.
The Price Guarantee is similar to Ofgem's Price Cap as it dictates how much you can be charged for each unit of gas and electricity you use, along with the standing charges.
The Government is currently set to raise its Price Guarantee this spring.
So what is the difference between Ofgem's Price Cap and the Government's Energy Price Guarantee? We explained all you need to know.
What is the Ofgem Price Cap?
Introduced in 2019, the Ofgem energy price cap is the maximum figure that consumers can be charged on a variable dual-fuel rate for each kilowatt hour (kWh) of gas and electricity they use.
The UK's energy regulator Ofgem sets the cap and applies it if you’re on a default energy tariff, whether you pay by direct debit, standard credit, or a prepayment meter.
Currently, the Ofgem price cap is £4,279 a year and is the highest the Price Cap has ever been.
Ofgem's Price Cap has risen significantly over the last two years because wholesale gas prices started to rise.
In 2021, nearly 30 energy providers in the UK collapsed. The price of wholesale gas got even worse when Russia invaded Ukraine last year and the price cap shot up as a way to compensate for wholesale prices.
Over the last two years, Ofgems price cap has been set at:
- October 2020 - £1,042
- April 2021 - £1,138
- October 2021 - £1,277
- April 2022 - £1,971
- October 2022 - £3,549
- January 2023 - £4,279
- April 2023 - £3,280
Last year, Ofgem adjusted the frequency of when it changes the Price Cap and now changes it every three months.
The energy price cap still exists, but currently, no one pays the rates set by the cap, and instead pays the rate of the Government's Price Guarantee.
However, the price cap still matters as it limits the underlying rates providers can charge.
The Price Guarantee is then applied to the Price Cap rates to bring down the price to the Government's promised level.
What is the Energy Price Guarantee?
In October 2022, the energy Price Cap was temporarily replaced by the Government's Energy Price Guarantee.
The Energy Price Guarantee is designed to limit what an average household in the UK will pay annually for electricity and gas.
The Price Guarantee now keeps a "typical" household bill to around £2,500 a year but your bill can go up if you use more energy and it can go down if you use less.
The Price Guarantee pays energy suppliers the difference between £2,500 and Ofgem's £4,279 Price Cap.
In April, the Government's Price Guarantee will rise to £3,000.
This will mean the "typical" energy bill would be around £500 more than it is right now.
