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Who sets the energy price cap, how does it work and when will it next rise?

Who sets the energy price cap, how does it work and when will it next rise?


fgem will announce the next energy price cap on Friday, August 26, and it will apply to most variable-tariff energy bills from October 1, 2022 until December 31, 2022.

According to the latest prediction from analysts at Cornwall Insight, energy bills are set to hit £3,582 per year, based on average typical usage.

Speaking to, Cornwall Insight’s Dr Craig Lowrey said: “Our default tariff cap forecasts for the winter period (October 2022 to March 2023) is now averaging over £3,500 for a typical household, or almost £300 per month, and this will remain the case until well into 2024.”

In the grimmest warning yet, it’s also been announced that the energy price cap could hit nearly £5,500 in April 2023, experts are predicting.

Gas prices spiked on Monday and, unless they drop in the coming months, average households could be facing annual energy bills of £4,650 from January, and £5,456 from April, reports iNews.

This adds an extra £200 to the consultancy’s previous forecast for April.

Here’s everything you need to know about who sets the energy price cap and how it works.

Who sets the energy price cap?

Ofgem introduced the energy price cap at the start of 2019, with the aim to prevent millions of households from being overcharged.

It limits what you pay for each unit of gas and electricity while “setting a maximum daily standing charge”, reports

Ofgem’s website states that its role is to “protect consumers by working to deliver a greener, fairer energy system”.

What is the energy price cap and what is Ofgem?

Ofgem, which originally stood for the Office of Gas and Electricity Markets, is the independent regulator of the British Energy Market, and it is designed to ensure customers are protected.

Therefore, a key part of its role is to set a limit – a price cap – on what energy firms charge customers on default or standard and variable tariffs.

It was launched in January 2019, by the regulator, and although it was originally a temporary measure, it’s remained in place due to the ongoing problems in the industry.

The cap applies if you’re on a default energy tariff, whether you’re paying via direct debit, or a standard credit, or a prepayment meter – it doesn’t apply to a fixed-term tariff.

Previously, variable tariffs have been more expensive than fixed-rate deals. And often, people are on these tariffs because they fail to switch suppliers when a fixed-term has ended or their supplier has been forced to close.

Despite this, at present, fixed-term tariffs are more expensive than the cap, meaning the majority of people are affected.

Ofgem says: “The global rises we’re seeing in gas prices mean this is a very challenging time. Right now, this may mean you find few better-value tariffs than being on a supplier’s default rate covered by the Government’s energy price cap if you are already on one.”

How does the energy price cap work?

The energy price cap works by stipulating a limit on the maximum amount that can be charged for a unit of gas or electricity, based on an estimate of the average household user.

This means that it’s not the maximum possible cost to a household, as if you burn a higher number of units, your energy bills will exceed the cap while, if you use less, you’ll pay less.

A maximum daily standing charge – which is the cost of getting the power to your home – is also included. The cap is determined by the costs faced by energy suppliers.

The cap is made up of a network, operating, and policy costs, as well as VAT and earnings. The amount is set differently depending on if you pay by a monthly direct debit or if you pay quarterly or on the receipt of a bill, or prepay for your energy.

When will the energy price cap rise again?

According to the latest prediction from analysts at Cornwall Insight, energy bills are set to hit £3,582 per year, based on average typical usage, in October. The new energy cap will be announced on Friday, August 26.

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