New energy price cap up 10% – but that’s NOT the maximum anyone will pay, warns Martin Lewis

So how does the price cap work?

The price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use – and a maximum daily standing charge (what you pay simply to have your home connected to the grid).

This means someone who uses a ‘typical’ amount of energy on a standard or default tariff currently pays a maximum of £1,137/yr on average, but that is set to rise to £1,254/yr in April. However, if you use more, your maximum is higher, use less and it’s lower. 

The price cap is reviewed twice a year, in April and October, and is set to remain in place until 2020, after which Ofgem will recommend on an annual basis if it should continue, up to 2023.

Why are prices rising?

According to Ofgem, rising wholesale energy costs (what suppliers pay for gas and electricity), was the main driver behind the increase. The regulator said these costs are around 17% higher than they were when it set the original cap level. 

Last year, higher oil prices, along with other factors like the higher demand for gas from the ‘Beast from the East’ weather event, led to a rise in wholesale gas prices. 

Other costs, including network costs for transporting electricity and gas to homes and costs associated with environmental/green energy schemes and policy costs, have also risen and contributed to the increase in the level of the caps.

What can I do?

The best way to save on your energy is to switch supplier. If you’re on a standard or default tariff, it’s likely your price will be going up in April. 

However, you’re free to switch away at any time. Suppliers can’t charge you exit fees if you’re on this type of tariff â€“ and savings of well over £250/yr are possible. 

However, as we don’t yet know how each supplier will change their prices under the new level of the cap, it’s likely that any savings you see when you compare will be underestimated. 

So factor this in when you compare. You can use our Cheap Energy Club to compare the whole of the market. 

What does Ofgem say?

Dermot Nolan, chief executive of Ofgem, said households would have been paying between £75 and £100 more right now had the cap not been introduced in January.

He added: “Under the caps, households on default tariffs are protected and will always pay a fair price for their energy, even though the levels will increase from 1 April.

“We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering.

“Alongside the price caps, we are continuing to work with government and the industry to deliver a more competitive, fairer and smarter energy market that works for all consumers.”

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