What is the energy price cap and how are gas and electricity bills changing?

Effective January 1st, the latest energy price cap has come into effect, leading to another increase in gas and electricity costs. Further increases are expected later this year, although the rise is not anticipated to be as significant as in recent years. This adjustment reflects ongoing market fluctuations and efforts to mitigate extreme price volatility.

The energy price cap covers 26 million households in England, Wales, and Scotland, and is set every three months by the energy regulator, Ofgem (the Office of Gas and Electricity Markets). It dictates the maximum price per unit of energy that can be charged on standard or default tariffs (for a typical dual-fuel household paying by direct debit). This regulatory mechanism aims to protect consumers from excessive energy costs.

For the period of January 1st to March 31st, 2025, the gas price cap is set at 6.34 pence per kilowatt hour (kWh), and the electricity price cap is 24.86 pence per kWh. This translates to an annual bill increase to £1738 per year for a typical dual-fuel direct debit household, an increase of £21 from the previous cap. Households paying their bills quarterly by cash or check will pay £1851. The changes reflect wholesale market prices and network costs.

The official energy price cap is revised every three months, with the next adjustment due in April. Analysts at Cornwall Insight, a forecasting agency that tracks the energy market, predict a further 5% increase in April, meaning that households using a typical amount of gas and electricity will pay £1823 per year. The cap does not apply to Northern Ireland, which has its own energy market. These forecasts are subject to change based on market conditions and regulatory decisions.

Your energy bill depends on the total amount of gas and electricity you use and how you pay. The type of home you live in, its energy efficiency, the number of occupants, and the weather all have an impact. Ofgem's cap is based on a "typical household" using 11,500 kWh of gas and 2,700 kWh of electricity per year, and paying their gas and electricity bills by direct debit. The vast majority of people pay their bills this way, helping to spread payments throughout the year. Those paying quarterly by cash or check are charged more. Individual consumption patterns significantly affect energy expenses.

Submitting meter readings when the price cap changes means you won't be charged for estimated usage at the wrong rate. This is especially important when prices are increasing. Customers with properly functioning smart meters do not need to submit readings, as their bills are calculated automatically. Accurate meter readings ensure fair billing practices during periods of price volatility.

Fixed-price deals offer certainty for a set period (usually a year or longer), but you could be stuck on a higher price if prices fall. Ofgem states that customers looking for price certainty should consider fixed deals. However, it advises getting independent advice. Uswitch, a price comparison website, says it is important to check if fixed deals charge exit fees before signing up and to make sure you fully understand the contract terms. As the price cap changes every three months, it is hard to be sure if a fixed tariff is a good deal. The longer the fixed term, the greater the uncertainty. Consumers should carefully evaluate the risks and benefits before committing to a fixed-price contract.

Between January and March, households with prepayment meters are paying slightly less than those on direct debit, with a typical bill of £1690, an increase of £21 from the previous quarter. According to Ofgem, around 4 million households have prepayment meters as of April 2024. Many meters have been in place for years, but some have been installed more recently after customers struggled to pay higher bills. Rules introduced in November 2023 mean suppliers must offer customers more opportunities to repay debts before moving them to a meter. In some households, it is simply not possible to install a meter. Regulations are in place to protect vulnerable consumers from forced prepayment meter installations.

Standing charges are a fixed daily cost used to pay for the cost of connecting to the power supply. The standing charge for electricity is typically 61p a day and 32p a day for gas, although they vary slightly by region. They have risen by 43% since 2019 under the energy price cap. Campaigners argue that standing charges are unfair because they make up a larger proportion of low-energy users' bills. Ofgem has proposed that energy companies must offer a choice of price cap tariffs from winter 2025, one with a standing charge and unit rate like now, and another with no standing charge but a higher unit rate. Customers could choose the one that suits them best, but there has been criticism of the proposals. The impact of standing charges on different consumer groups remains a topic of debate.

In addition, it wants suppliers to take a consistent approach to unpaid bills totaling £3.8 billion. Changes to Winter Fuel Payments mean that more than 10 million pensioners did not receive the money this winter. Previously, the money was paid to all pensioners born before September 25, 1957, in England and Wales. However, in July this year, the government said future payments would only be paid to low-income individuals claiming certain benefits, including Pension Credit. The 2024 payments (worth £200 or £300 depending on individual circumstances) are paid automatically to eligible pensioners. However, tens of thousands of people who are entitled to Pension Credit have not claimed it, meaning they will also miss out on Winter Fuel Payments. Efforts are underway to encourage eligible individuals to claim Pension Credit.

The Household Support Fund, launched in September 2021 to help vulnerable customers, has been extended to March 2026. The Warm Home Discount scheme continues to offer discounts to eligible pensioners and low-income households. The government's Fuel Direct scheme can help people repay energy debts directly from their benefit payments. In addition, suppliers must offer affordable payment plans or repayment holidays if customers are struggling to pay their bills. Most suppliers also offer hardship grants. A range of support measures are available to assist households facing energy affordability challenges.