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What Is The Purpose Of A Price Cap?

After a whopping 54% increase on energy bills in April this year, many homeowners have been left wondering what exactly the energy price cap is. Allow us to explain.

Read Time : 4 mins

Author : NED

The UK energy price cap is currently a very contentious issue in the media and with homeowners alike, garnering much negative attention.

If you are unsure of exactly what the price cap is or its purpose, we here at National Energy Direct want to keep you informed and equipped to navigate contemporary property utility issues.

What Is The UK Energy Price Cap?

Price cap regulation is a type of (in this case utility) management and regulation, first designed in the 1980’s, it has subsequently been applied to all privatised British network utilities.

The energy price cap is set by Ofgem (Office of Gas and Electricity Markets), and is defined as - the maximum amount a utility company is permitted to charge a customer in Great Britain per year for the amount of electricity and gas they use on default, or standard variable tariffs.

Since its inertia in 2019, the price cap has been an issue of debate. The energy cap has recently seen its second successive huge leap, with the already record breaking cap of £1,971 rising by 80% to £3,549!

Other alterations to the UK energy price cap is the fact it will now be subject to review and change every 3 months, instead of every 6 months.

With the uncertainty and high prices being driven by the ongoing energy crisis, and the fact winter is the season in which the most energy per home is consumed, experts are predicting many homeowners will feel further financial strain.

What Is The Energy Price Cap’s Purpose?

The whole basis for the introduction of a standard and accepted energy price cap in the UK was to negate potential fuel poverty and protect consumers from the eventuality of massive bill hikes.

So the fact that this initiative price barrier has risen to such a high price is now seen by many as counterproductive, as a significant number of homes will still struggle to meet the new tariff costs.

What is Fuel Poverty?

Fuel poverty is an inability to sufficiently heat a property, in this case the cause being the unprecedented high costs of energy within Europe and the UK.

Worrying recent estimates of protected fuel poverty in the UK claim two-thirds of families could experience some level of fuel poverty by January!

With the colder autumn and winter months fast approaching, many homeowners fear the very real possibility they may not be able to afford sufficient heating when they and their families most need it.

Why Is The Current Energy Price Cap So High?

There are a number of ongoing socio-economic and geo-poilitical factors that have contributed to energy price hikes in recent times.

Post pandemic normality, current conflict in Europe and the ongoing UK energy crisis have all meant the energy price cap has ballooned in response to market inflation. Prices soared so rapidly in 2021 that many energy suppliers buckled under the strain and collapsed, the unprecedented magnitude and uncertainty of COVID-19 created a surge in energy prices once all yoyo lockdown restrictions were finally lifted.

A recent supply decrease in Russian oil to Europe has also contributed to the prices of gas rising exponentially in the UK.

National Energy Direct

We understand this is a difficult time for property owners in the UK due to the volatile nature of the energy market at current.

Contact us today for any energy projects or utility enquiries as we are a fully accredited multi-utility connections and delivery team who cater for all aspects of the energy market.

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