The Energy Price Cap is Increasing: What it Means for You

What is the Price Cap?

The price cap was announced by the government in 2019 to prevent large energy companies, like the historical Big 6 (British Gas, EDF, E.ON, Npower, SSE, Scottish Power), from overcharging loyal customers with extortionately expensive default tariffs. The cap for average annual consumption was initially set at £1,137.

Since its introduction in January 2019, the price cap has saved households on default tariffs an estimated £100 a year each, or over £2 billion in total on their energy bills.

What’s happening now?

Ofgem, the industry regulator, calculate the level of the cap based on energy supplier network costs, the average overheads of each supplier and renewable power subsidies, amongst other things. They review the level every 6 months, and changes come into effect every April and October.

Ofgem announced on the 6th August that the cap will rise by £139 to £1,277 a year for the typical dual fuel home, as of 1st October 2021.

Although this is a big rise, the impact for customers would have been even bigger without the price cap. The costs energy retailers incur to buy energy have increased by almost 80% since the beginning of the year – from £418 in January to £747 in August 2021.

What does that mean?

It’s expected that many suppliers, including the legacy Big Six, will view the price cap as a target, rather than a limit – raising their poor value default tariffs to squeeze as much money out of their customers as the new price cap level will allow.

If you’re an Octopus Energy customer, we'll always aim to raise prices later – and to a level that’s lower – than any other large supplier, and we will continue to keep our standard prices significantly below the price cap.