Energy price cap explained

The energy price cap limits the maximum price energy suppliers can charge per unit of electricity and gas, as well as the standing charge, for customers on standard variable tariffs. This mechanism, set by the UK's energy regulator Ofgem1, aims to protect consumers from unfair pricing. However, it is a common misconception that the cap limits your total energy bill; it only limits the unit rates and standing charges, meaning your overall costs still depend on how much energy you use.

Understanding the energy price cap is crucial for managing your household bills. At Fuse Energy, we believe in transparent pricing and giving you the tools to take control of your energy usage. Click here to see how easy it is to switch to a smarter energy experience.

What is the energy price cap?

Definition and purpose

The energy price cap is a regulatory tool designed to prevent energy suppliers from overcharging customers on standard variable tariffs (SVTs). Introduced in January 2019, its primary purpose is to ensure consumers pay a fair price for their energy, particularly those who have not switched tariffs recently or whose fixed deals have ended. The cap sets a maximum price for each unit of gas and electricity (pence per kilowatt-hour, or p/kWh) and a maximum daily standing charge (pence per day, or p/day).

Who the cap applies to

The energy price cap applies to households in England, Scotland, and Wales who are on standard variable tariffs or use prepayment meters. If you have never switched energy suppliers, or if you have rolled off a fixed-rate deal and have not chosen a new one, you are likely on a Standard Variable Tariff and are therefore protected by the cap. It does not apply to fixed-rate tariffs, where your unit rates and standing charges are agreed for a set period, or to business energy contracts.

Key components of the cap

Ofgem calculates the energy price cap by considering various costs faced by energy suppliers. The largest component is wholesale energy costs - what suppliers pay to buy gas and electricity on the open market - which typically accounts for around 45% of a typical bill for a tariff priced at the maximum allowed under the cap. Other significant components include:

• Network costs: Charges for maintaining and upgrading the infrastructure (pipes and wires) that deliver energy to your home.
• Policy costs: Levies that fund government energy schemes, such as support for renewable energy and the Warm Home Discount.
• Supplier operating costs: Expenses for day-to-day activities like customer service, billing, and metering.
• Regulated profit margin: A small allowance for suppliers to cover their running costs and earn a reasonable return.
• VAT: Applied at 5% on domestic energy bills.

How the energy price cap works

How Ofgem calculates the cap

Ofgem builds the cap from the ground up, assessing the typical costs energy suppliers incur to deliver gas and electricity to homes. This calculation uses a representative consumption level, known as Typical Domestic Consumption Values (TDCV), as a benchmark. These values were recently revised, with the average UK home now estimated to use around 2,500 kWh of electricity and 9,500 kWh of gas per year, effective from 1 July 20262.

Quarterly reviews and updates

The energy price cap is reviewed and updated quarterly by Ofgem. These changes come into effect on 1 January, 1 April, 1 July, and 1 October each year. Ofgem typically announces the new cap levels several weeks in advance, allowing suppliers and consumers to prepare. This quarterly review process was introduced to allow the cap to respond more quickly to volatile energy markets, ensuring it accurately reflects the current state of wholesale energy prices.

Unit rates vs total bill

It is crucial to understand that the energy price cap limits the unit rates (p/kWh) and the daily standing charge, not the total amount you pay for energy. Your total bill will always depend on how much energy you actually use. If your household consumes more energy than the "typical household" benchmark used by Ofgem, your bill will be higher than the headline cap figure. The cap acts as a rate ceiling, not a spending limit.

Impact on your household bills

The energy price cap directly influences the costs for millions of UK households on standard variable tariffs. The latest cap, effective from 1 July to 30 September 2026, sets the average annual bill for a typical household paying by Direct Debit at £1,663.

Understanding your tariff

If you are on a Standard Variable Tariff, your unit rates and standing charges will fluctuate in line with the energy price cap changes every three months. If you are on a fixed-rate tariff, the cap does not directly affect your prices until your fixed term ends. It is always worth checking your current tariff details, as suppliers may offer fixed deals that could be different from the price cap rates.

Standing charges and unit rates

Under the cap, you pay a unit rate for every kilowatt-hour of energy consumed and a daily standing charge. The standing charge is a fixed daily fee you pay simply to be connected to the grid, regardless of how much energy you use. For the period of 1 July to 30 September 2026, the average unit rates and standing charges (for Direct Debit customers, inclusive of VAT, averaged across England, Scotland, and Wales) are:

• Electricity: 26.11p per kWh and 57.19p per day standing charge.
• Gas: 7.33p per kWh and 29.04p per day standing charge.

These figures can vary slightly by region and payment method.

What happens when the cap changes

When the cap changes, your energy supplier will adjust your unit rates and standing charges accordingly if you are on a Standard Variable Tariff. For example, the cap for July to September 2026 saw an increase of 13% for a typical household compared to the previous quarter, primarily due to higher wholesale gas prices. These changes are automatically applied to your bill.

Managing your energy costs

Taking an active role in managing your energy usage is the most effective way to control your household bills, regardless of the energy price cap.

Monitoring your usage

Understanding how much energy you use is the first step to reducing your costs. Regularly checking your energy consumption can help you identify patterns and pinpoint which appliances might be consuming the most energy. Many energy suppliers offer tools or apps that allow you to track your usage in near real-time.

Smart meters and data

Smart meters provide automatic readings to your supplier, ensuring accurate billing and eliminating the need for manual submissions. They also offer in-home displays that show your energy consumption in real-time, empowering you with the data needed to make informed decisions about your usage. This transparency can be a powerful tool for managing costs.

Exploring energy-saving measures

Even with the price cap in place, reducing your overall energy consumption will directly lower your bills. Simple measures like improving insulation, switching off lights and appliances when not in use, and using energy-efficient appliances can make a significant difference. Considering a more efficient heating system, such as an air source heat pump, can also lead to long-term savings. For those considering cooling solutions, understanding air conditioning installation options is also key. You can also explore the potential disadvantages of an air source heat pump to make an informed decision.

The future of energy pricing

The energy price cap serves as a reactive measure within the current energy system, designed to protect consumers from immediate market volatility. However, it does not address the fundamental need for more affordable, abundant energy.

Beyond the price cap

While the price cap provides a necessary safeguard, it is not a permanent solution to high energy costs. It primarily responds to market conditions, particularly wholesale energy prices, which remain volatile. A truly sustainable future requires moving beyond simply capping prices within an existing framework.

Towards abundant and cheaper energy

Fuse Energy envisions a future where energy is so abundant it stops being a constant worry. This means rebuilding the energy system from scratch, focusing on delivering the cheapest, cleanest energy possible. By vertically integrating and innovating across the energy supply chain, Fuse aims to create a world with "power to play with," where energy is plentiful and affordable.

Empowering consumers with control

Fuse believes in shifting the balance of power into the customer's hands. This means providing homeowners with greater control and transparency over their energy usage and costs, mitigating the anxieties often associated with price cap fluctuations. Through intuitive technology and dedicated 24/7 human customer support, Fuse empowers customers to understand and manage their energy, moving away from a scarcity mindset towards one of abundance and capability.

Managing your energy bills can feel complex, especially with fluctuating price caps. Fuse Energy is committed to making energy simple, transparent, and affordable. We offer clear pricing, real-time usage data through our app, and 24/7 human customer support to help you understand and control your energy costs. Make a power play for your home energy. Click here to switch to Fuse Energy today and join a future where energy is abundant and easy to manage. You can also learn more about our mission to redefine energy by clicking here.

References

1. Ofgem. Energy price cap
2. Ofgem. Review of Typical Domestic Consumption Values