What is an Energy Cap and How Does it Affect ME?

We are in unprecedented times at the moment. Energy prices have risen…not just a little…but by 50%. This is a huge blow to many households across the country. There is going to be some support moving forwards, but not a lot.

Below I talk about what an energy cap is, what help is available and what you can do to try and lower your costs.

What is an Energy Price Cap?

Ofgem regulate the whole energy industry, they have had to raise the price cap as wholesale price has increased by as much as 5 times. Subsequently as many as 24 energy firms have gone bust. A price cap, is the maximum amount that an energy supplier can charge, per unit of energy. There’s also a standing charge – which is usually a daily charge that you have to pay, to be connected to ‘The Grid’.

So the average consumer will pay a daily amount for just being connected and another rate for what they actually use.

The price cap increase is due to come in force as of April 2022. The average household will subsequently see a raise of £700 per annum! The cap itself is for each unit of energy, not on the total amount you can be charged. (the more you use…the more you will have to pay and that figure is NOT capped)

The good news for some is that if you are on a fixed rate tariff, this won’t affect you. The problem is, a lot of people’s energy company have gone bust, which means you will be transferred to another energy company, which is likely to be a standard variable rate. These policies are the ones that are being affected.

Why Did Energy Companies Go Bust?

The following companies actually went bust during the last 12 months or so:

So why did they go bust in the first place? Here is a scenario for you:

Imagine I said you can have gas and electric from me for £100 a month (because I know I’m paying £30, so I’ll be making a healthy £70 a month off you.)

I tie you into a contract for 2 years, job done!

However… over those 2 years, wholesale price has gone up by nearly 5 times…so the price I was buying it for, is now £150.

So what was costing me £30, is now costing £150 – but you’re only having to pay me £100 a month…I’m now £50 DOWN… and this is why energy companies have gone bust. Times that loss by the number of customers you have and you start to see why they have gone bust. The actual total amount lost is … an amount I’d need a calculator for!

What does this mean for me?

The cap is set for six months, so it could come down again, if wholesale prices come down, however, it is expected to rise again.

There will be a government loan which will offset £200 of the annual increase, per household. This will be repaid by us over a 5 year period, to try and help us pay for these ever increasing rates. The government are also looking to give everyone a council tax rebate of £150 for everyone between bands A to D (which equates to roughly 80% of the country.

What Do I Think You Should Do?

There are three things you could do – directly relating to your deal.

1. Do nothing. Stay where you are, brace yourself and see where this takes us.
2. Look around at other providers – looking, doesn’t hurt anyone. At the moment, the price cap is generally considered the best deal, but still look around.
3. Look at longer term fixed rate deals – so if there are more hikes, you are protected – HOWEVER… it doesn’t mean that you will win and fixed rate deals at present are eye-watering. If you do this, it is a gamble.

To help reduce energy bills, you could do some or all of the following:

• Not ideal…but literally wear a dressing gown/jumper/ hoody around the house. This will reduce the time you need the heating on.
• Use LED lightbulbs – they consume less energy than conventional lightbulbs.
• Bulk cook your meals
• Turn the lights off, see it on, turn it off!
• Reduce the number of hot drinks you have, kettles use 2-3kw of energy per boil, so only boil what you need.
• Don’t have your TV on Standby. TV’s have become quite energy efficient to be fair, however, do the lights off test, see a light – turn it off!
• Install solar powered lights in the garden. You can get these reasonably cheap and only pay for the item once. Some are incredibly bright these days too.

Some of the above might be a bit far fetched and seem a bit silly, but by being energy efficient and consciously reminding yourself about the bills, the little things will all start adding up.

If you are on a low income or claim pension credit, you may eligible for Warm Home Discount through your supplier, definitely worth asking. There are also other potential grants available such as Winter Fuel Payments and Cold Weather Payments too – Head to the governments help page – Simple Energy Advice

If you find that you are struggling with payments there is always help.

All debt issues can be solved – not some – ALL

There are a number of debt charities available, there’s also Citizen’s Advice Bureau (CAB). Seek support through these people first and they’ll tell you your options, some energy suppliers may even give you a grant. All energy suppliers have to listen if you tell them you cannot afford the bills. This doesn’t mean that they have to take your offer of repayment, but they will have debt plans in place. Failing all of this – British Gas actually have a charity arm called ‘British Gas Energy Trust’, you don’t need to have your energy with them to potentially be able to get a grant through them. This does depend on your personal circumstances.

Has the energy hikes affected you? Do you need some money help and support? Reach out to Adam – Adam@loveandover.com and follow on his YouTube Channel