There’s no doubt you’ve heard a lot in the news about the Energy Price Cap. You’ve also probably seen regular emails or letters from your energy supplier, explaining how your rates have changed over time.
With the cost of living so high, it’s normal to feel anxious about what these changes mean for your pocket – whether it’s the jargon, the rates changing so regularly, or the constant headlines, understanding your energy costs can feel like a full-time job.
But it doesn’t have to feel that way. We’re here to give you a straightforward, honest and jargon-free explanation of Ofgem’s Energy Price Cap.
The number one thing to remember is this cap is not a limit on the total amount you pay for your energy – the less you use, the less you’ll pay. Here’s everything you need to know.
Clearing up Energy Price Cap myths
Before explaining exactly what the Energy Price Cap is for, it’s important to clear up exactly what it doesn’t do.
The biggest misconception is that the Energy Price Cap limits how much you’ll pay overall each month. It doesn’t. Despite the name, this isn’t a cap on your total bill.
It only limits the maximum Unit Rates and Standing Charges that suppliers can charge customers who are on standard variable tariffs. This applies to all suppliers.
Put simply, the Energy Price Cap limits the rates you pay for your energy, but your total costs will always depend on how much energy your home uses.
Think of it like buying petrol for your car. Imagine there’s a government restriction that limits petrol stations to charging no more than 180p per litre. This limits the price of the fuel itself, but if you drive 1,000 miles per month and your friend drives 100 miles per month, your cost at the pump will be significantly different. Your energy costs work exactly the same way.
Every time you see Ofgem’s latest price cap in the news, it’s important to see this for what it is, an estimated figure based on the average household with average energy consumption.
These figures vary by region, meter type, fuel type and payment method, so there isn’t one single universal capped price.
In reality, two households on the exact same tariff could be spending very different amounts on energy each month. If you live in a large, poorly insulated house and leave the heating on all day, your costs could be well above that advertised “cap”. If you live in a smaller, energy-efficient flat and are mindful of your usage, you could be paying well below it.
The golden rule to remember is this: use more energy and your costs will be higher; use less and you’ll pay less.
How does the Energy Price Cap work?
To understand how the price cap impacts your household budget, you need to understand exactly what’s being capped. Your energy costs are made up of two main parts: Unit Rates and Standing Charges. The price cap sets a maximum limit both of these can be charged at.
Unit Rates
- Your Unit Rate is the amount you pay for the actual gas and electricity you use.
- This is measured in kilowatt-hours (kWh).
- Every time you boil the kettle, run a hot bath, or turn on the heating, you’re using a certain number of kilowatt-hours.
- So when the price cap changes, it changes the maximum amount your supplier can charge you for each kWh of gas and electricity.
Standing Charges
- The Standing Charge is a fixed daily amount you may have to pay just to have your home connected to the energy network.
- Even if you turn off every single appliance and go on holiday for a week, you will still pay your daily Standing Charge, which covers the cost of maintaining the national energy grid, keeping the pipes and wires safe, and delivering the energy straight to your door.
- It’s worth noting that customers on a Pay As You Go tariff with Utilita don’t have to pay a Standing Charge.
The Energy Price Cap applies specifically to customers on standard variable tariffs. Many customers choose variable tariffs, but if you’ve ever had a fixed tariff and the contract ended without you choosing a new one, you would have also been moved onto a standard variable tariff.
(Note: We’ll be covering the differences between variable and fixed tariffs, as well as the pros and cons of Pay As You Go, in future guides – so, we’ll keep things focused on the price cap for now!)
When does the Energy Price Cap change?
Previously, the Energy Price Cap only changed twice per year. But in order to keep up with a faster-moving world, and make sure the cap accurately reflects the real-time cost of buying energy, Ofgem now reviews and updates the cap every three months.
So, when does the Energy Price Cap change? The changes take effect on the first day of the following months:
- 1 January (Covering January, February, and March).
- 1 April (Covering April, May, and June).
- 1 July (Covering July, August, and September).
- 1 October (Covering October, November, and December).
These quarterly changes mean that if the wholesale cost of energy drops significantly, you’ll see the benefit on your bills much faster than you would have in the past. Although this does unfortunately mean if wholesale prices increase, they’re also passed through quicker.
When is the next Energy Price Cap announcement?
Ofgem always gives suppliers and the public plenty of notice before a new price cap kicks in. You won’t just wake up on 1 January and suddenly find out your rates have changed.
Typically, Ofgem announces the new price cap levels four to six weeks before they take effect. For example, the announcement for the 1 October changes is usually in late August, and the announcement for 1 January in late November.
This window gives energy suppliers the time they need to update their systems, adjust their tariffs, and most importantly, communicate clearly with their customers so everyone knows exactly what to expect in the months ahead.
Utilita always send customers an email or a letter explaining how the Energy Price Cap will impact their prices, before anything officially changes.
Who sets the Energy Price Cap and how is it calculated?
The price cap is set independently by Ofgem, which is the official energy regulator for Great Britain.
Suppliers like Utilita do not set the Energy Price Cap. Ofgem considers a huge amount of data to understand how much it costs suppliers to buy and deliver gas and electricity to customers, and then uses that figure to set a maximum price we can charge.
This calculation includes things like:
- Wholesale energy costs: this makes up the biggest chunk of your energy cost. It’s the amount it costs suppliers to buy gas and electricity on the open wholesale market, which they then provide to your home.
- Network costs: this is the money that goes to the companies responsible for building, maintaining, and operating the physical pipes and wires that carry energy across the country to your meter.
- Operating costs: this covers the day-to-day running of an energy supplier, including IT systems, customer service teams, and billing infrastructure.
- Policy costs: these are government-mandated levies that support environmental schemes, renewable energy projects, and social initiatives to help vulnerable people.
- VAT: a standard 5% tax applied to domestic energy bills. Although in October 2026, the UK government temporarily cut the VAT rate on domestic electricity in Great Britain from 5% to 0% until at least 30 June 2027.
Ofgem adds all these costs together and then factors in a small, strictly controlled profit margin for suppliers. The final numbers for each payment method become the Energy Price Cap. By doing this, Ofgem ensures that energy companies cannot charge unfair prices, but they can still cover the real-world costs of buying and supplying your energy.
Our Fairer Energy Report breaks down exactly where each £10 of your bill goes – you can see the full report here.
Are energy prices going up in the UK? (And why do they fluctuate so much?)
One of the most common questions customers ask is: “Are energy prices going up?”. It’s a completely fair question, especially when household budgets are already stretched so thin. Unfortunately the answer isn’t always a simple yes or no, because energy prices are constantly shifting in response to changing operating costs, increasing “non-energy” costs like policy or network costs, and ongoing global events.
The UK doesn’t produce enough of its own gas to meet the country’s demands, which means we have to buy a significant amount of our energy from the global wholesale market. So, an event happening thousands of miles away can directly impact the price you pay to boil your kettle here in the UK.
The impact of global events and conflict
One of the biggest drivers of recent energy price increases has been international conflict, particularly in regions that are vital to global energy supplies. The ongoing conflict in the Middle East is a prime example of how global events directly hit wallets in the UK.
While the UK doesn’t necessarily buy all of its gas directly from the Middle East, the global energy market is entirely interconnected. A large portion of the world’s Liquefied Natural Gas (LNG) travels through key shipping routes in and around the Middle East, like the Red Sea and the Suez Canal.
When conflict breaks out or escalates in these areas, several things happen:
- Shipping risks: commercial ships carrying gas face increased security risks. Some transport companies will reroute their ships entirely to avoid danger zones, which takes much longer and costs much more in fuel and wages.
- Market panic: if there’s a risk that gas supplies might be delayed or disrupted, the market panics. Buyers start rushing to secure the gas they need, which drives the price up for everyone.
- Supply chain bottlenecks: when global supplies are reduced, countries end up bidding against each other to buy whatever gas is available. The less gas available, the more bids, the higher wholesale prices become.
To sum up, when these global wholesale prices spike, UK energy suppliers are forced to pay more to secure the energy needed to power your homes. This is then considered in Ofgem’s calculations, which pushes the Energy Price Cap up.
You may sometimes see in the news that “wholesale gas prices have dropped” and wonder why this doesn’t immediately bring your cost down. This is because energy suppliers buy energy months in advance to make sure there’s always enough supply to meet demand, especially ahead of cold winters.
It takes a little time for short-term drops in the wholesale market to be reflected in the official Energy Price Cap.
Wholesale costs are also only part of the picture. There are other costs on all of our bills that are increasing, and we’re lobbying Ofgem and The Government to help bring these costs down.
What can you do to bring your own costs down?
When you hear about global events and Ofgem regulations, it’s easy to feel like you have no control over your energy bills. But while you can’t control the price of the Energy Price Cap, you’re in complete control over how much of that energy you actually use.
Remember, the less you use, the less you’ll pay – that’s why we’re always trying to help you keep your costs down with closer control and practical energy-saving tips that actually stick.
Here are a few ways you can take back control:
1. Track your usage visually
If you have no visibility of where your energy is going, you can’t reduce your usage. With a smart meter and a Smart Display, you can see exactly how much you’re spending on each appliance. Better yet? Utilita customers can check the My Utilita app in seconds for real-time visibility and personalised tips to reduce usage.
2. Follow our Energy High 5 tips
We created Energy High 5 to help you keep costs down all year round. Every season, check out five simple, actionable changes you can make around the house. They cost nothing to implement and can save you serious £££s over the course of a year. Whether it’s turning the thermostat down by one degree, washing clothes at 30°C, or unplugging appliances when not in use, they’ll help reduce your usage without impacting your comfort.
3. Learn from others
Finding it difficult to manage your energy costs? You’re not alone. Our Utilita Community is absolutely full of tips, tricks, and practical advice – not just from us, but from customers just like you. Sometimes the best money-saving hacks come from other busy parents who have figured out clever ways to keep the family warm and entertained without watching the meter spin out of control. Plus, our Help Centre has lots of useful information if you’re struggling.
4. Invest in solar
One of the best ways to help protect yourself from unpredictable energy prices is to generate your own clean, renewable electricity with home solar panels. Plus, with a solar battery, you can store power when it’s cheap and sell back to the grid when prices spike, to make even more savings. We can send you personalised solar designs with flexible payment options in no time at all. Find out more about solar savings here.
The important takeaway on the Energy Price Cap
To sum up, Ofgem’s Energy Price Cap on variable tariffs applies to all suppliers, and it’s directly impacted by wholesale energy costs.
But the average annual cost of energy you see published every three months is only a guide – it’s based on estimated costs for the average household and only gives part of the picture. It’s a cap on your rates, not how much you’ll pay.
While these announcements can feel overwhelming, understanding how they work is the first step in taking control of your household budget. The less you use, the less you’ll pay.
We’re on a mission to help shine a light on the reality of energy prices, so watch this space. If you haven’t already, check out our blogs on how to properly compare energy tariffs, and the differences between fixed and variable tariffs.