What is the energy price cap and how will a rise affect your bills?

• The price cap set by regulator Ofgem caps how much homes pay for power
• Price cap rises mean millions pay more for gas and electricity from January

Changes to the Ofgem energy price cap affect the gas and electricity bills paid by millions of homeowners.

Energy regulator Ofgem's average price-capped bill, currently £1,717 a year, will rise to £1,738 from 1 October. 

In practice, this means a household using the typical amount of energy will see an increase in in bills of around £21 a year - at least until Ofgem next updates its price cap in April 2025.

This is everything you need to know about the Ofgem price cap and how it affects energy bills.

What is the Ofgem price cap?

The price cap is a limit, set by Ofgem, which caps the maximum amount an energy firm can charge for the units of gas and electricity consumers use.

It also limits how much households pay in standing charges - the daily fees paid regardless of how much energy is used. 

The price cap was introduced in January 2019 to prevent energy firms overcharging customers on variable-rate tariffs.

Because cheap fixed-rate deals have almost disappeared, almost all homes are now on tariffs regulated by the Ofgem price cap. 

How does the price cap affect my energy bills? 

This depends on what sort of tariff you have, your meter and how much energy you use.

From 1 January, the average household on a variable-rate tariff paying by direct debit will pay £1,738 a year for gas and electricity due to the price cap.

For those with prepayment meters, average price-capped yearly energy bills will rise by 1.2 per cent to £1,690 a year.

Meanwhile, those paying when being sent a bill will pay £1,851 a year, an increase of 1.2 per cent.

The typical home with an Economy 7 meter - for electricity only - will pay £1,150 a year from January 2025, an increase of 1.7 per cent. 

But exactly how much you pay will vary depending on your energy use. This is because the price cap only limits the maximum you can be charged for the units of gas or electricity you consume. The more units you use, the more you pay, and vice versa.

How does the price cap affect standing charges?

The Ofgem price cap also regulates standing charges. 

The level of the standing charge varies depending on factors such as where you live in the country.

Electricity standing charges will fall to 60.97p per day, down from 60.99p. For gas, standing charges will fall to 31.65p per day, a slight drop from 31.66p today

Where are all the cheap energy deals? 

Historically, most households have locked in to fixed energy deals. Variable-rate deals have been what customers fell onto once these cheaper fixed-rate deals expired.

But that all changed in late 2021, when energy firms stopped offering cheap fixed-rate deals.

They did this because of the energy price crisis, when wholesale prices of gas began to soar.

Because most consumers were on fixed-rate tariffs, energy firms were forced to buy power for much less than they could sell it for.

As a result, dozens of energy firms collapsed and the rest waited for customers to end up on more expensive variable-rate deals.

Most of the country is now on a variable-rate energy tariff, with prices set by the Ofgem price cap.

But during 2024 cheaper energy deals have been launched that undercut the price cap, both now and when the new one kicks in on 1 January. 

What is the future of the price cap?

Ofgem does not normally make predictions about how the price cap will change.

But longer-range predictions are available from analysts at Cornwall Insight, which has predicted all previous price cap movements fairly accurately.

Cornwall Insight thinks the average gas and electricity bill will fall later in 2025.

A Cornwall Insight spokesperson said: 'Given the price cap rise in October, many will have been hoping to see a fall in the cap for January. Unfortunately, forecasts show that prices will be staying relatively high for the remainder of winter.

'Looking further ahead, we currently forecast the cap will drop slightly in April 2025 and again in October 2025.'