Energy price cap explained please

javixeneize

Hi

i would like to understand better what’s the energy price cap, as probably it’s not what I expected

im reading it’s limited to £1277 a year. I’m an octopus customer and their estimation of my yearly energy usage is around £1400. Also, it’s the cheaper provider apparently!

so, what is that cap then? How does it work?

thanks

Gerry1

It's a cap on total annual cost (kWhs + daily charges) of the Standard Variable Tariff for the average usage.  If you use more than average then you will pay more than the capped price.  It doesn't apply to fixed tariffs.

https://www.ofgem.gov.uk/sites/default/files/2021-08/Default tariff cap level - 1 October 2021 - 31 March 2022.pdf

With the huge increases in fixed tariff prices, from October - April, the variable tariffs are effectively fixed.

javixeneize

So there is a cap but it is not a cap because you can end paying more even if in a variable tariff. This is what I don’t get. What is the average usage? Who rates if my usage is average or not??
 If they increase the price if the kWh, I will pay more than the cap, and I will be “non average”?

Bendo

You meter measures your usage. You pay for what you use.

The cap is on the unit price and is generally expressed as what the average homes usage works out as. If you use more than the average house then you pay more. It you use less then you pay less.

bristolleedsfan

javixeneize said:What is the average usage?

2900 E. 12000 Gas

spot1034

As is so often the case this is very poorly explained by the media with the figure for average usage being given far too much prominence, which leads to more confusion than is really necessary.

javixeneize

Ok, so the cap is in the unit price, not in the final bill, correct? What is the max price for the gas/electricity then? This is what I can’t see anywhere 

Also, if a company sets a price higher than the cap, is it illegal?

QrizB

javixeneize said:

Ok, so the cap is in the unit price, not in the final bill, correct? What is the max price for the gas/electricity then? This is what I can’t see anywhere

Dertails of the cap are published on Ofgem's website. From the notes to the press release:

The price cap is a cap on a unit of gas and electricity, with standing charges taken into account. It is not a cap on customers’ overall energy bills, which will still rise or fall in line with their energy consumption. From 1 October the equivalent per unit level of the price cap to the nearest pence for a typical customer paying by direct debit will be 21p per kWh for electricity customers and 4p per kWh for gas customers.

Note "to the nearest pence"; prices a little over 21p/kWh and a little over 4p/kWh are alowed. Also the Standing Charge is capped to around 25p/day. There is more info for consumers here.

javixeneize said:

Also, if a company sets a price higher than the cap, is it illegal?

Companies can offer whatever tariffs they wish, but one of those - their standard variable tariff - must be no more expensive than the price cap. Having a standard variable tariff that's higher than the price cap would be illegal, yes.

johnhancock

I understand that the £1297 media rate is in any case subject to VAT (according to my supplier). Can anyone confirm that this is correct?

phillw

johnhancock said:

I understand that the £1297 media rate is in any case subject to VAT (according to my supplier). Can anyone confirm that this is correct?

It looks like the £1277 October cap includes £61 of vat to me.

 https://www.ofgem.gov.uk/sites/default/files/2021-08/Default tariff cap letter for 1 October 2021.pdf

hydratoad

QrizB said:

javixeneize said:

Also, if a company sets a price higher than the cap, is it illegal?

Having a standard variable tariff that's higher than the price cap would be illegal, yes.

Just to clarify that some suppliers, for example Ecotricity, have permanent derogations (exemptions) from the price cap.

https://www.current-news.co.uk/news/ofgem-awards-clean-power-trio-permanent-price-cap-derogation

https://www.ofgem.gov.uk/publications/decision-issue-renewable-energy-company-limited-ecotricity-enduring-derogation-renewable-standard-variable-tariffs-default-tariff-cap