The Energy Price Cap - How does it work?

MeterMan

So in trying to understand how the price cap actually works, I've spent a fair bit of time googling to see if I can make sense of it, to truly understand if it even means anything.

The only explanation I can find is that you energys price is capped at xxxx per year.

But further in the bumpf it talks about the unit rate is capped and therefor you could pay more than the price cap over the year, I can not find anywhere what this unit price cap is.
 
Anyone got an explanation for how it works?

PennineAcute

The rate is capped for x kWh of gas or electricity a year.  If you use more than this, you will be charged more.  If you use less than this, you will be charged less.
I do not know the value of x - but the cap is not a cap as you and I understand a cap to be.  Just a maximum that the unit price and standing charge can be.

Gerry1

It's like saying that Harrods mustn't charge more than £1 per can of baked beans.  If they'd been charging £2 per per can then you'll be better off by £365 per year if you used one tin every day.  But if they were 25p per tin at Lidl you'd still be being ripped off, but not quite so badly.

And your annual bill wouldn't be limited to £365 if you bought shedloads from Harrods.

https://www.ofgem.gov.uk/system/files/docs/2020/02/default_tariff_cap_level_-_1_april_2020_-_30_september_2020_0.pdf

matelodave

As PA says, the cap is not on the total cost of your bill just on the tariff rate per kwh & standing charge and is based on what an average household might pay (which also varies depending where you live) so if you use more energy than an average household you'll still pay more and conversely if you use less you'll pay less.
It's a complex calculation based on an average amount of gas and or leccy, or if you are all electric based on a notional average of peak & off peak amounts and is also dependent on on the tariff structure of the supplier and the supply region. It's not easy to compare because the cost has the kwh rate & standing charge rolled together and is calculated over a 12 month period

Have a shufti here and follow the links.https://www.ofgem.gov.uk/energy-price-caps/levels-energy-price-caps to see if you can understand whats its all about

matelodave

Here are the capped amounts for the various regions up to March 2020.
You'll see that they are based on an average number of kwh in a year and a notional standing charge which allows suppliers to roll up the costs and then decide how much they want to charge per kwh or standing charge providing it doesn't exceed the annual cap.
You'll also note that the cap differs for how you pay, credit and even smart meters, just to confuse you even more
https://www.ofgem.gov.uk/system/files/docs/2019/08/default_tariff_cap_level_-_1_october_2019_-_31_march_2020.pdf

Paygo has it's own separate list of charges