Well it’s been a confusing few weeks regarding energy prices and Ofgem price caps, but I think I’ve managed to get my brain around the situation now, so I thought I’d share my conclusions. If you think I’ve misinterpreted the situation or you disagree with anything I’m saying, please get in touch via this contact form or email me.
My current energy supplier is E.On. Until recently I was on tariff Fix Online v47, with electricity costing 19.73p/kWh and gas costing 3.84p/kWh. My monthly direct debit was £160 – it’s a 1930’s five-bedroom house probably with inadequate insulation and I like to keep the temperature at a comfortable level. Since this tariff was scheduled to come to an end this month, I followed Martin Lewis’s advice on his Money Saving Expert Web site, crunched the numbers, and as the projected increase in energy prices was expected to be higher than E.On would be charging me on their replacement Next Online v18 tariff, I decided to move to that rather than take the risk of my bills sky-rocketing on a variable tariff. These things are always a gamble, and my choice might have landed me with slightly higher bills if the anticipated rises hadn’t materialised, but I felt safer going for the option which protected me from the worst possible scenario. Under this new tariff I’d be paying 52.63p/kWh for electricity and 13.35p/kWh for gas: that’s a rise of 167% and 248% respectively at a time when people were saying prices might double or treble. My direct debit was going to rise from £160 to £360 a month.
This decision-making process all seemed to make sense at the time, but then the government started talking about putting a cap on energy prices. It was a bit confusing at first, and even Martin Lewis was reluctant to make any definitive pronouncements on his weekly appearance on various Radio 5 programmes about how it would work. At first E.On told its customers that “the energy price cap will only apply to you if you’re on our variable tariff” (8th September – see https://blog.eonnext.com/entries/97-Ofgem-announce-new-quarterly-price-cap), however a few days later they announced that “customers on a fixed tariff will also receive the same level of price reduction as those on standard variable tariffs” (13th September – see https://blog.eonnext.com/entries/98-New-government-energy-bills-scheme-announced). Martin Lewis was keen to stress that “the energy price guarantee limits the amount households can be charged per unit of gas or electricity… so your exact bill will continue to depend on how much energy you use” (12th September – see https://www.moneysavingexpert.com/news/2022/09/energy-bills-price-freeze-cost-of-living-government-liz-truss-/). Remember the Ofgem price cap is a cap on the amount your supplier can charge you for each kWh of energy you use – it’s not a cap on your monthly/quarterly energy bill. The more energy you use, the higher your bill is going to be!
What this is saying is that whether you’re on a variable or a fixed tariff, the Ofgem price cap will protect you. The new prices will be 34.00p/kWh for electricity and 10.30p/kWh for gas, which in my case represents a rise of 72% for electricity and 168% for gas (Ofgem cap v. Next Online v18). A quick back-of-the-fag-packet calculation makes my monthly direct debit around the £260-£280 mark – still a shock to the wallet but a lot better than the £360 I was originally looking at. I’ve reduced my direct debit already and I’ve made a note in my diary to check whether the new amount is keeping pace with my actual usage going forward.
I’m not an expert on energy tariffs, the energy industry or energy-related legislation, nor am I a financial advisor. All my thoughts are honestly expressed and my figures and calculations are openly available for you to confirm for yourself. Hopefully this post has clarified the situation regarding the Ofgem energy cap and how it applies to your own tariff. If you spot any erroers in this article or you have any comments or (constructive!) criticisms, get in touch with me via this contact form or by email.