Energy price cap: how to protect against future price rises – and whether you should switch deals

From today a typical household will pay £1,923 a year for their energy bills, following a reduction in the “price cap”.

This is down from £2,074, the energy regulator said – but households should still brace for higher prices than last winter.

Last year, a government-subsidised discount knocked £400 off every home’s energy bills in the five months between November 2022 and March 2023. But with this help no longer available and standing charges costing as much as £300 a year, some 7.2 million households face paying more this winter than during the bills crisis last year, according to the Resolution think tank.

Experts have warned bills are unlikely to fall below £1,700 for the rest of the decade.

Here, The Telegraph covers what the energy price cap is, whether it’s time to consider a fixed-term deal, and what you can do now to protect yourself from an energy price rise this winter.

What is the energy price cap?

The price cap limits what energy providers can charge customers on a “standard variable tariff”. It does not apply to fixed-rate deals. Most households are currently on variable deals as providers were unable to offer competitive fixes throughout the energy crisis.

Ofgem’s price cap is determined by wholesale costs and is revised every three months. The price cap rose from a low of £1,042 in February 2020 to £1,971 in April 2022. As Russia’s war in Ukraine intensified, driving up wholesale prices, the cap continued to rise – eventually reaching a peak of £4,279 in January 2023.

This prompted the Government to intervene in September 2022 by introducing the Energy Price Guarantee, a similar cap on energy bills that limited the average household bill to £2,500 a year regardless of the turmoil in the wholesale market.

The guarantee was due to be raised to £3,000 a year in March. However, an unexpected drop in wholesale energy prices allowed the Government to freeze it at £2,500 until June, by which point energy prices were expected to drop.

From July, when the Ofgem-set price cap finally fell below the government-backed EPG, households on variable deals automatically reverted to the former.

It is important to understand the price cap does not limit the amount you will pay over the course of a year. The amount of energy a typical household uses in one year is known as the typical domestic consumption value (TDCV) – and the headline figure of £1,923 is simply how much the TDCV costs under current market rates.

When Ofgem announced its update to the price cap on Friday, it lowered the TDCV to reflect the fact households were using less energy a year than previously.

Because of this adjustment, the price cap appears to have fallen significantly from £2,074 to £1,923. But in fact, the rates for gas and electricity have only gone down by a few pence per kilowatt hour (30p to 27.35p for electricity; and 8p to 6.89p for gas).

Instead, it caps the rates at which you are charged for your gas and electricity usage, as well as the standing charges for both. Standing charges are billed to households at a daily rate regardless of how much energy they use – and these have remained the same as under the previous price cap – equivalent to £5.74 a week, or £300 a year.

How much will I save now prices have gone down?

From October 1 to December 31, the unit rate for electricity will fall from 30p per kWh to 27.35p. Gas will drop from 8p per kWh to 6.89p.

To take an example of how the price cap affects your own usage, an electric kettle of water typically costs 6.5p to boil under the previous price cap.

The average person drinks 884 cups of tea a year, according to a 2015 YouGov survey, meaning if you were to boil a fresh kettle of water for every cup, that would cost you £57.65. For the next three months, this will fall by an estimated 8.3pc to £52.87 – saving you £4.78 a year, although costs can vary slightly depending on the power use of your kettle.

Electric showers will cost 24p for every five minutes, or £1.68 a week, assuming one shower a day – this doubles to £3.36 for 10-minute showers. A family of four doing this would rack up £13.44 a week on showers alone.

Even under the new cap, washing machines, tumble dryers and dishwashers will remain expensive. A typical 90-minute cycle on a washing machine will cost 92p – and an hour’s ironing costs 41p on top of that. A tumble dryer’s 45-minute cycle costs 55p, and a dishwasher costs between 77p and £1.58 depending on the length of the cycle.

Easy ways to save money on energy bills

Though August and September are typically warm months in Britain, temperatures will inevitably drop soon, so this could be the ideal time to sort out your home’s energy efficiency.

There are things you can do during the autumn to stand you in better stead for when temperatures drop.

Get your boiler serviced

Getting your boiler serviced once a year is a good way to make sure it’s running as efficiently as possible. Many people won’t be thinking much about their boilers during the autumn months, but it can be a good time to book a service – some engineers may be less busy, and may even offer “off-peak” prices.

What’s more, if something is found to be wrong with your boiler, you won’t need to worry about bringing in energy-guzzling electric heaters should you need to switch it off for repairs.

Sort your insulation

A quarter of heat is lost through the roof of an uninsulated home, whether you live in a tiny cottage or a sprawling mansion. Installing loft insulation only costs between £400 and £1,200 for the average house and should pay for itself many times over in its 40-year lifetime, something well worth considering while bills remain high.

Should I buy a fixed-tariff deal?

Before the energy crisis, households were used to shopping around for competitive fixed-price deals. However, the energy crisis upended the market, leaving variable rates governed by the price cap as the only viable option. Fixed rates became so expensive that providers stopped offering them all together.

As wholesale prices have cooled, a number of fixed-rate deals have come on the market after years of being unavailable. Sadly, few of them offer meaningful savings over the current price cap, according to comparison site USwitch.com.

Even those that do come with caveats: Octopus Energy’s Loyal 12-month fix saves a mere £16 a year compared to the average bill under the current price cap — and is only available to existing customers.

E.On Next’s Pledge Tracker 12-month offer is priced £50 below the cap, and like the cap itself is reviewed every quarter, so if the cap falls, so too will the tariff. This deal is also only available to existing customers.

Utility Warehouse’s Fixed Saver 6, meanwhile, works out as £56 cheaper than the price cap. The catch here is that customers must also sign up for two other services offered by the provider – such as mobile and broadband. However such bundles may cost households more than taking out separate deals with other providers.

Proponents of fixed-rate deals argue they offer long-term security, as unlike variable tariffs they cannot change throughout the duration of the deal. This could shield households from shocks in the wholesale market.

However, analysts across the sector predict the cap will rise when it is next adjusted in January, meaning fixing at a rate on par with October’s cap could save you money in the long run. Most agree prices are unlikely to spike as they did when the war in Ukraine began.

Martin Young, energy analyst at Investec, said: “We do not expect a deluge of cut-price deals, holding a view that switching will be driven by customer service and innovative products.

“Uptake will depend on personal preference and exit charges.”

Dr Craig Lowrey, of analysts Cornwall Insight, added: “Those seeking alternative options to bypass the high cap prices through the return of fixed tariffs will need to manage their expectations, as the availability of deals below the cap is still uncertain.

“Even for those able to secure a below-cap rate, it remains a risky decision. There is a possibility that the cap could decrease, leading to consumers locked into higher-than-market prices.”

This article is kept updated with the latest information.