The Energy Price Cap Explained

The current energy price cap for January 2024 is £1,928 for the typical UK household. This is a 5% increase on the last announcement. The energy price cap does not apply to businesses. 

The energy price cap is the maximum amount suppliers can charge their customers for energy. This does not impact businesses as the price cap is for UK households only. 

The cap was introduced in January 2019 and is now updated every 3 months by the energy regulator Ofgem.

Here, you can find the latest information on the energy price cap and how it affects your gas and electricity prices.

Are Electricity Prices Increasing? 

Here is a full history of the energy price cap. 

Predictions and data sourced from Cornwall Insights.

It should be noted that future price prediction can change depending on wholesale market rates. These prices are impacted by many factors including world events.

Why Did The Energy Price Cap Increase Rapidly? 

Prices started to increase in 2021 as the price of gas led the surge globally. Following this electricity wasn’t too far behind and energy prices started to cause concern to households and businesses. 

These price increases were caused by several things including demand growth as world economies came out of the pandemic of the previous year. As we entered 2022, the price of gas continued to surge as Russia launched an invasion of Ukraine. 

What Costs Make Up The Energy Price Cap? 

The main costs that Ofgem uses to calculate the price cap is wholesale energy, network costs, supplier operating costs and government policy. These are all costs passed on to the consumer. 

• Wholesale energy prices - these change daily and makes up the majority of the price cap 
• Network costs - this covers the cost of gas and electricity distribution/ maintenance 
• Policy costs - these are additional costs mainly to pay for Government policies (for example, warm home discount etc) 
• Supplier margins - Ofgem allows an operating profit for the suppliers before tax of £19.75 per duel fuel customer per year plus 1.4% of revenue. 

How will the price cap affect energy bills?

As the price cap has been reduced, government support is set to be scaled back.

As energy prices spiralled in 2022, the government introduced the Energy Price Guarantee and the winter bills discount. These support measures meant the average household bill would be priced at around £2,100.

However, the £400 winter bills discount ended in April 2023 and the Energy Price Guarantee is ended in July.  

Does the price cap affect businesses?

The energy price cap only applies to home energy and does not affect business tariff prices. As there is no cap on the cost of business energy, tariff prices have increased significantly.

Whilst there is no business electricity price cap, financial support has been introduced in the form of the Energy Bill Discount Scheme (EBDS). The EBDS is applied directly to wholesale costs to reduce business energy prices. The discount is relative to wholesale prices above a certain cost. These are:

• A maximum discount of £89 per MWh with a price threshold of £185 per MWh for electricity
• A maximum discount of £40 per MWh with a price threshold of £99 per MWh for gas

Under the EBDS, support will be phased in when the wholesale prices reach the floor price until the total discount reaches the maximum cap.

The discount will be available to businesses on a new fixed price energy contract, or a fixed price deal agreed on or after 1^st December 2021. Businesses on deemed or variable deals will also be eligible for the discount.

Should I switch business electricity supplier?

The Energy Bills Discount Scheme doesn’t affect your ability to switch business energy suppliers. As the discount applies to new fixed price contracts, you can agree a new deal and still be eligible for potential discounts.

With Business Electricity Prices, you can quickly compare the latest energy prices from a panel of trusted suppliers. All you need to do is select the right tariff for you and we’ll handle the full switching process for you.

To find out which deal is right for you, simply compare the latest business electricity prices online today.

Find out more about the following:

• What is the energy price cap?
• Why has the energy price cap been reduced?
• How will the price cap affect energy bills?
• Does the price cap affect businesses?
• Should I switch business electricity supplier?