The Energy Price Cap Explained

The Energy Price Cap Explained

You don’t need us to tell you that energy prices are on the rise. Despite recent interventions by the Government intended to help us all through the winter months, most homes are still looking at fuel bills that will be twice as high as last year. 

As a result of numerous factors – including Covid and the war in Ukraine – wholesale gas prices have gone through the roof, with the result that the energy price cap has also had to be raised.

What that means in practice is that fuel bills for the average home will be £2500 a year from October 2022 as opposed to the £1277 we were paying 12 months earlier.  

The situation will be reviewed again in April 2023, when many of us will see our bills go even higher, probably to about £3000, although further help has been promised for the most vulnerable and those on benefits.

Amidst all the controversy and fear, it’s not always been made clear exactly what is meant by the energy cap, with some people mistakenly thinking that it meant you wouldn’t pay more than those quoted figures.

This article will cut through the jargon to provide a simple explanation of the terms and issues involved – and how you can cut the amount you spend on heating your home.

How our bills are calculated

The gas and electricity we use is measured in kilowatt hours (kWh) – a kilowatt hour being the amount of energy that would be needed to keep a 1,000-watt appliance running for an hour. The more appliances you run, the more kWh you’ll clock up and the higher your bills will be.

That’s because the price cap applies to the price per kWh, not your total bill, so the more energy you use, the more your total bill will be.

How much you pay per kWh will depend on a number of things, including who your supplier is, how you pay (such as by direct debit or a prepayment meter) and your particular tariff.

So what is the energy price cap?

The energy cap limits how much your supplier can charge you both for the energy you use and for any standing charges. However, it should be remembered that it only applies to those on a standard variable tariff – that is estimated to be about 80% of us. It will not apply to you if you are on a fixed term tariff or a standard variable green energy tariff that Ofgem has exempted from the cap.

What the cap means is that your supplier cannot charge more for your energy than the amount dictated by the government. As we’ve mentioned, this is not a fixed level, but averages out at 34p per kWh for electricity (with a maximum standing charge of 46p per day), and 10p per kWh for gas (with a maximum standing charge of 28p per day).

For a typical household with average consumption on a dual fuel default tariff and paying by direct debit, this equates to £2500 per year. For a small flat with average consumption that total should be less, while for a four or five-bedroom house with average consumption, it should be more.

How to pay less for your heating

Doubling energy bills has hit all of us hard, but for those on low incomes times are especially difficult, and with temperatures starting to drop sharply as we go from autumn into winter, staying warm for less is a challenge many people will be facing.

One solution would be to introduce wood burners to the home. One of the great benefits of a wood burner is that you can heat just the room you’re in rather than the whole house, and it seems that many people are now being tempted by this option. The Stove Industry Alliance (SIA) has reported a rise of 40% in sales compared to the same period last year, while searches on Google for wood burners are up 140% compared to last year.   

But is it worth it? Well, some estimates show that running a wood burning stove can cost about 13% less than gas and about a third of what you’d pay for electric heating. That sounds like a worthwhile economy to us!

Government help for those using solid fuel

While the help that the government is providing for energy bills has been well documented and publicised, you may not be aware that households who use fuels other than gas to heat their homes (such as solid fuels and heating oil) and who are on the electricity network, will receive a one-off payment of £100 to cover the rising costs of those fuels.

If you have a wood burner or a similar solid fuel stove, you can get superb value on a full range of home fuels at KG Smith & Son, including:

Get in touch with us now if you want to know more, or you can order your home fuel online now, with free delivery nationwide on many orders, plus emergency deliveries available should you get caught short by a sudden cold snap.



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