What does the 'energy price guarantee' cap mean for you?

With households facing severe rises in energy costs, the government has implemented a temporary energy price guarantee that will see costs limited for many households.

But how does it work, and can you take advantage of it? 

What is the energy price guarantee? 

Energy prices in the UK are roughly set by Ofgem and the energy price cap.

In August, the energy price cap rose to £3,549, meaning that many households would face an increase in their energy bills of as much as 80 per cent.

To help households facing this pressure, the government announced an energy price guarantee that capped the unit costs of energy usage for the average household.  

The new energy price guarantee caps the standing charges and unit rates of your usage.

So the more you use, the more you pay, and the less you use, the less you pay. Importantly though, there is no total cap on your bill.

Learn more: Should I get a smart meter?

How does the energy price guarantee work? 

How the energy price guarantee will impact you will depend on your energy tariff, and where you live, as energy prices vary depending on your region.

The new guarantee means that if you’re on a standard variable tariff rate, your electricity costs will now be limited to 34p per kWh including VAT. Your gas costs will now be limited to 10.3p per kWh including VAT.  

If you are on a fixed tariff unit rate, your electricity costs will be reduced by 17p per kWh, and your gas costs will be reduced by 4.2p per kWh. For the duration of the price guarantee, standing charges on electricity will now be limited to 46p per day, with gas at 28p.  

In addition to these price caps, the government is also issuing a £400 energy rebate which will be taken out of your energy bill by your energy provider.  

What if you don’t get your energy payments this way? 

Even if you aren’t on a fixed or variable tariff, you can still take advantage of the new prices.  

If you are a renter and are responsible for organising your own energy payments, you will automatically benefit from the price guarantee.

If your landlord is responsible, the new prices must legally be passed on to you.  

If you are on a pre-payment meter, you will automatically receive the discount with the money on your meter lasting longer thanks to the new rates.  

If you aren’t directly connected to the energy grid, you will receive support through the Energy Bill Relief Scheme which will pass on the new prices to the organisations or business that gets energy from a supplier. You will receive the discount automatically.  

Finally, if you use electricity and not gas, you will still receive support on your electricity costs.  

When does the energy price guarantee start? 

The energy price guarantee came into effect from 1 October, meaning that all subsequent bills will be charged with the new prices.

However, having initially been scheduled to last for two years, the policy has since been cut to last for only six months. As a result, the energy price guarantee is set to make your bills more affordable between October 2022 and April 2023.  

Does the energy price guarantee apply for businesses? 

While there is no energy price cap for businesses, the Energy Bill Relief Scheme offers some support to businesses facing increased energy costs and works similarly to the energy price guarantee for households. 

The Energy Bill Relief Scheme will run for six months, between October 2022 and April 2023, and will limit the wholesale costs of energy suppliers.

This saving will then be passed down to businesses in the form of cheaper baseline wholesale unit costs.

If your business is on a fixed-rate contract, the discount you will receive will be the difference between the baseline wholesale price and the rates you agreed to when you signed the contract. 

Businesses on out-of-contract and deemed rates can also receive the discount.

For businesses on variable rate contracts, the discount you receive will be the difference between the baseline wholesale price and the relevant wholesale price charged by your supplier. 

Like with the energy price guarantee, this relief doesn’t limit how much your bill will rise to, but it does mean that the less energy you use, the less you pay.  

How does the energy price guarantee affect you? 

The energy price guarantee is a welcome addition to many households facing severe rises in their monthly energy bills.

However, it’s important to remember that this relief is only temporary and does not cap your energy bill from rising above a certain level.

And, while the guarantee stops households paying even more on their bills, prices are still way above normal levels, so many households still need to be ready to take steps to minimise their energy usage.  

You can save potentially hundreds of pounds a year by doing the following: 

• switching off standby mode on your digital devices 
• draught-proof gaps in your home 

• turn off unused lights 
• wash clothes one time less a week and only on 30 degrees 
• avoid the tumble dryer 
• four-minute showers 
• swap baths for showers 

• don’t overfill the kettle 
• reduce your dishwasher use by one run a week 
• insulate your hot water cylinder  

Rising energy prices are affecting households across the UK and could impact your financial planning.

Speak to a financial adviser and find out what you can to do to keep on top of rising prices and keep your financial goals in place. Find an adviser with Unbiased.