The ‘default tariff cap’ – extensively referred to as the power value cap – determines the utmost value per unit clients will pay for gasoline and electrical energy. It applies to clients on ‘variable’ or ‘default’ tariffs – the place charges fluctuate in response to market forces and was initially launched in 2019 to guard customers who didn’t change to cheaper provides or had been unable to modify.
The cap is often up to date each six months, based mostly on the UK power regulator Ofgem’s estimates of the prices confronted by power suppliers, and permits for some provider revenue. The cap solely limits the value charged per unit of power, not the general invoice a buyer pays, which will depend on general use.
Ofgem expresses the cap by way of the associated fee for a family with typical power utilization. On this measure, the primary default tariff cap in January 2019 was £1,104, earlier than fluctuating over time to achieve £1,277 by October 2021. In April 2022, this shot as much as £1,971 and the newest forecasts recommend it can rise to £3,582 in October 2022 and £4,266 in January 2023. Ofgem will now set a brand new cap each three months as a substitute of six as a result of speedy price of change in prices – which may imply costs rise sooner – but in addition ought to imply any future falls within the value of power are extra rapidly handed to the buyer.
There are a number of causes for this dramatic improve. First, wholesale power costs elevated considerably from mid-2021 (which means power suppliers needed to pay extra to purchase gasoline and electrical energy). This was on account of rising international demand post-lockdown and different provide points regarding gasoline particularly. Russia’s invasion of Ukraine inflated costs additional as Russia minimize gasoline provides to European international locations, who’re themselves making an attempt to scale back their reliance on Russian gasoline. Wholesale gasoline costs are actually ten instances increased than a 12 months in the past.
As a result of the value cap shouldn’t be deemed to be sufficient to guard folks from rising payments, it has been supplemented by additional measures. These are set out in our explainer on power value help.