The energy price cap is the maximum fee that a provider can charge households for their standard tariffs, including the basic fee and the price per kWh of electricity and gas.
Ofgem, the Gas and Electricity Markets Office, sets the upper limit for summer and winter based on the cost of energy supply to ensure that prices are fair to consumers.
By 2014, the “Big Six” power companies controlled 90 percent of the market, when Ofgem allowed smaller providers to compete and potentially lower prices for consumers.
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Lower prices did not follow, and many challengers went broke as wholesale gas prices rose. The UK remains one of the most expensive places in Europe to heat your home.
The upper limit for energy prices was raised to a record level this winter. Those using standard tariffs and using the typical amount of energy per household will see an increase from £ 139 to a whopping £ 1,277 per year.
Not only that, those who are into prepayment counters will also face a £ 153 increase.
Many industry experts predict it could climb even further to £ 1,660 or more next summer.
Does the energy price cap affect companies?
Small businesses don’t fall below the energy price cap and could increase their bills by a staggering 125 percent this winter.
Companies whose suppliers go bust during the current energy crisis may not even see some of the credit they have built with their provider.
A UK government spokesman said: “The Secretary of Commerce is in regular contact with the energy industry and Ofgem to deal with the impact of high global gas prices and will continue to monitor the situation incredibly closely, including the impact on small businesses.”
“All energy customers, regardless of their supplier, can rely on the fact that, even if their supplier fails, a robust and well-rehearsed process is in place to ensure continuity of supply.”
But the company owners are anything but reassured.
Unlike normal customers, companies do not have the same level of protection. Credit can be lost if Ofgem cannot find an alternative supplier willing to do so, and power can be shut down immediately if payments are not met.
Payment plans are available for companies that cannot afford the increased energy costs, but will be charged a shutdown fee if they are not met.