Everything you need to know about the energy price ceiling and how it works

Energy bills will fall by £238 a year for millions of households from April after the regulator confirmed a new price cap.

But what is the energy price ceiling, how does it work and how many people does it affect?

Here’s everything you need to know.

What is the energy price ceiling?

The energy price ceiling was first introduced on January 1, 2019 by the regulator Ofgem.

The cap was introduced with the aim of preventing the millions of households who still had expensive rates at the time from being defrauded.

As it stands now, the price cap is updated every quarter or three months.

The price ceiling is currently £1,928, the lowest figure since March 2022.

But on February 23, Ofgem announced that the price cap would be £1,690 from April to June – down from £238.

Please note that the £1,690 figure is calculated based on what Ofgem thinks an average household will use.

This is calculated on the assumption that an average household uses 2,700 kWh of electricity and 11,500 kWh of gas over a twelve-month period.

From April 1, the gas price will be reduced from 7.42p per kWh to 6.04p.

Meanwhile, the unit rate for electricity will fall from 28.62 cents per kWh to 24.50 cents, Ofgem said.

Those who use less will pay less, and those who use more will pay more.

The price cap will affect around 29 million customers, according to Ofgem. It does not affect those on fixed-term contracts.

The dates on which the levels will then be announced are as follows, according to the regulator.

• Level from July 1 to September 30, announced May 28, 2024
• Level from October 1 to December 31, announced on August 27, 2024

Please note that Ofgem has also given itself the power to change the limit at certain points during ”exceptional circumstances”.

The ceiling is calculated based on the wholesale price of gas and electricity.

This also includes tax exemptions, levies on energy networks, green levies and social benefits.

Britain imports more than two-thirds of its gas, which is subject to global price fluctuations, making prices more volatile and likely to rise.

How does the energy price ceiling work?

The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.

It ensures that prices for people on standard energy rates are fair and that they reflect energy costs.

This means that even though the energy price limit is €1,928, you may pay more or less than this amount depending on your consumption.

The way you pay for your energy, where you live, the type of meter and your consumption all influence your energy bill.

Ofgem is also setting a maximum daily fixed charge, which is what households must pay to connect their home to the National Grid.

When first introduced, the price cap was expected to remain in place until at least the end of 2020, although the government has announced its intention to have the price cap extended beyond 2024 if necessary.

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