Word of the Week – Energy bills cap

Welcome to Mouth Money’s Word of the Week, a weekly dive into essential personal financial phrases and words. We want to help simplify complex financial jargon and empower your understanding of money.

The Energy Price Cap in the UK is a regulatory measure designed to protect consumers from excessively high energy bills by capping the price that energy suppliers can charge for each unit of electricity and gas.

Introduced by Ofgem, the country’s energy regulator, in January 2019, the cap primarily affects households on standard variable or default tariffs—those who haven’t switched to a fixed-price energy deal. Its aim is to prevent energy companies from overcharging customers, especially those who are less engaged with the energy market or unable to find better deals.

However, it’s important to understand that the cap does not limit the total amount households pay for their energy.

Instead, it restricts the price per unit of gas and electricity. This means that while the cap offers protection from extreme pricing, your final energy bill still depends on how much energy you use. The more energy consumed, the higher the bill will be, even under the capped rates.

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Ofgem reviews the energy price cap every three months, adjusting it based on fluctuations in wholesale energy costs, inflation, and other factors. This system means the cap can rise or fall over time, affecting energy bills.

For example, during the energy crisis in 2021-2022, when wholesale energy prices surged due to supply issues and geopolitical events, the price cap was adjusted upward. Even with the cap in place, many households saw steep increases in their bills, highlighting that the cap offers some protection but doesn’t fully shield consumers from market volatility.

In 2024, the cap has come down slightly compared to the heights of the energy crisis, but prices remain significantly higher than they were in earlier years. While the cap has provided a safety net during periods of instability, it does not guarantee affordability, especially for households with higher energy needs.

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