How do energy price cap protections work?

How do energy price cap protections work?


Price caps are here to ensure you pay a fairer price for your gas and electricity, and to protect against overcharging. Twice a year – in February and August – Ofgem sets the levels of the caps. Suppliers can’t charge you more than the level we set, although they may charge less. But that doesn’t mean your energy bills can’t go up or down. That’s because the caps only set the price for each unit of energy you use. It doesn’t set your monthly energy bill. So if you use more units of electricity and gas, you will still pay more. If you use less energy, your bill we be lower. It’s the same as if there was a price cap on a cup of tea. The price cap would stop you paying more than a certain amount for a cuppa. But the more cups of tea you drink, the more it would cost you. We also need to update the level of the price caps every six months because the cost of the energy you use changes during the year. For example, suppliers have to buy the electricity and gas they supply to their customers from wholesale energy markets. These costs make up almost half a customer’s bill and change depending on market conditions such as international oil and gas prices. If wholesale energy prices go down, we need to lower the price cap to make sure suppliers pass on these reductions to their customers by cutting bills. If wholesale prices go up, the price caps need to rise to allow suppliers to recover their higher costs and keep supplying customers. A capped energy tariff won’t be the cheapest deal on the energy market. You are likely to save more if you switch. But if you don’t switch, price caps give you peace of mind that you’re paying a fairer price based on the costs to get energy to you.

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