There has been a lot in the news about unprecedented energy price rises but what exactly is happening and what does it mean for you?
The price cap is a system that sets the maximum prices that energy suppliers can charge customers who are on a standard variable tariff. The price cap is reviewed every 6 months and is based on changes to the wholesale price of gas during a 6-month assessment period. The next price cap comes into place on 1st April 2022. It varies depending on how you pay for your energy - the most expensive prices are for people who pay when the bill comes (£2,101).
The price cap is a deceptive term, it is really a cap on rates. It is calculated based on average gas use of 12,000kWh per year and annual electricity use of 3,100kWh. If you use more than this amount of energy then your bill will be more. It’s like going to the petrol station and the price of diesel being capped at £1.50 per litre, the amount you actually spend still depends on how much you drive.
The typical changes to unit prices and standing charges are shown below (although rates may vary slightly depending on where you live):
The price cap applies to anyone on the standard variable tariff so this could be you if your fixed tariff has recently ended, if your energy supplier went bust and you got transferred to a new company, or if you have never really reviewed your tariff and just gone with the default rates. It also applies to the vast majority of prepayment customers.
No, if your tariff is fixed then your rates will stay the same until that fixed tariff ends. We would recommend seeing that out for as long as possible but do be prepared for much higher prices when it finishes.
If you are on the standard tariff then the price cap is going up by 54%. So, as a ballpark figure, if you currently pay £100 per month then your direct debit may need to go up to £150. Similarly, if you pay £50 per month it will need to increase to £75. If you are in credit or debit though then the figures may vary.
We have heard cases of some suppliers putting direct debits up by as much as double. This needs to be looked at on an individual basis but, if you are in credit or about even on your account, then there is no reason why the payments should double. This is worth challenging with the supplier. The only reasons it may go up by so much is if you are behind (and paying back debt) or if you were on a particularly cheap fixed tariff that has recently ended (and so your prices have gone up even more steeply).
We would recommend firstly talking to your energy supplier as they have a responsibility to discuss affordable payment plans with you. Just bear in mind though that if they offer a lower amount then there is still a risk of debt building up. It is also worth looking at whether: