Ofgem changes the energy price cap again: How do I save?
Ofgem recently said they are revising the energy price cap that limits energy unit rates and standing charges for most standard variable tariffs available in the UK. Based on average consumption figures, customers on the most expensive tariffs could see annual savings of up to £75 when compared to previous price cap levels from earlier this year.
Will I get £75 off my bill?
Around 11 million Britons will see some savings on their gas and electricity bills but there are a few things to keep in mind when it comes to the energy cap:
- The energy price cap is not a benefits scheme like the Warm Home Discount scheme.
- The type of meter and tariff affect the level of potential savings.
- The energy provider you are with and how competitive they are determines how much you save.
- Your energy needs and consumption impact how much you pay and therefore how much you save.
The energy price cap explained
A common misconception surrounding the idea of an energy price cap is that somehow your yearly energy bill totals cannot exceed the levels set by the Ofgem energy price cap. While it’s tempting to think that you can take long hot showers and the price cap protects you, that notion is patently false, unfortunately.
What this energy price cap does is set a maximum for how much your energy supplier can charge you per unit of electricity or gas and the delivery fee for getting the energy to your home. Let’s quickly review some figures.
When announcing any change to the energy price cap, Ofgem takes average energy use figures based on national statistics. Currently, those figures are 3100kWh of yearly electricity use and 12000kWh of gas for the average home. If you use more or less than those amounts, then you will see varying benefits from this price cap, but that’s not the end of the story.
The energy price cap only applies to Standard Variable Tariffs (SVT) for households with standard or smart meters. Are you on a prepayment meter? Are you doing your bit for the environment with a green tariff? Then no price cap protection for you.
Likewise, if you did the responsible thing and signed up for a fixed rate tariff, where unit rates and standing charges are set for a year or two, you will not benefit from the price cap either.
At this point, it’s worth asking who are these 11 million people who are supposedly going to benefit from the price cap. All these conditions need to be met to see some savings from the price cap:
- You must be on a Standard Variable Tariff without renewable energy obligations.
- You must have a standard or smart meter.
- You must either pay by direct debit, by cheque, directly at the bank or over the phone.
- Your unit rates and standing charges have to be the most expensive on the market.
- You must use an average amount of energy, broadly in line with Ofgem’s consumption estimates.
Let’s not mince words here, if you meet the above criteria you are being robbed blind by your energy provider. Ofgem might be belatedly taking action by capping how outrageous the energy industry can be with their pricing, but that’s a small consolation.
The energy price cap is a regulatory measure meant to curb the worst of the worst in the energy industry when it comes to fuel poverty and energy affordability. It’s not a traditional discount or benefit and delivers little for British consumers, especially those who are savvy when it comes to personal finances.
What can I do about rising energy costs?
There are close to 100 energy providers in the UK all doing essentially the same thing: selling gas and electricity to British homes. If you are well-informed, then you will likely save money and find energy companies charging well under the energy price cap. Here is what you need to look for.
1. Type of tariff: fixed-rate or variable rate
If you want peace of mind, then fixed-rate energy tariffs are the way to go. However, if you have the time to stay current on changing energy costs, then variable rate tariffs could give you a slight edge on savings because they give you more flexibility to switch. At the same time, there’s a rising number of fixed-rate tariffs that let you leave without penalty if you want to switch.
2. Type of meter: smart or standard
If at all possible, avoid having a prepayment meter because prepayment tariffs are the most expensive on the market, and you will not be able to benefit from cheaper deals available exclusively to people who pay by direct debit.
3. Don’t forget customer service
Going for the absolute cheapest deal might result in bottom of the barrel customer service that leaves you in the lurch when you actually need help. For this reason, it’s best to pick an energy supplier with competitive pricing but also a decent track record with customer service.