There is no maximum limit on the price you pay
Speaking on his show, Martin also went into more detail on how the energy price cap works. He said: “This limits the standard variable rate – the default tariff – that firms can charge. Over half the homes in the country are on it and many more are going to be on it.” Martin explained that you’ll either already be on the price cap or will be automatically put on it if you’ve never switched tariff, your cheap fixed deal ends, or you do nothing.
But Martin added that even with the cap in place there is no maximum limit on the total amount you pay. He explained: “You often hear this £1,277/yr figure-that’s the cap for someone with typical use. If you use more, you pay more.” He explained that the best way to think of it is that it is a cap on the cost of each unit of energy you use.
On 1 October, the price cap jumped by 12% (or by 13% for people on prepayment meters). For someone with typical use, the cap was £1,138/yr but that is now £1,277/yr. Martin explained that the current price cap is based on wholesale energy rates-the price suppliers pay for gas and electricity-between February 2021 and July 2021, which did rise.
However, that increase is nothing compared to the projections for next April’s cap, which will be based on wholesale prices from August 2021 to January 2022 – a period which has already seen a very steep rise in wholesale rates. And as wholesale prices have continued to rise, it most likely means an even bigger increase from April 2022.
Martin said: “The latest estimate is that on 1 April the price cap will rise by 30% based on the current run rate-so to £1,660/yr on typical use. That means around a £500/yr cost increase compared to a year before. There would have to be an enormous radical change for there not to be a huge increase.”
About a year ago, you could lock in to a tariff, on typical use, for about £800/yr. If you came off that deal now you would go automatically onto the price cap at £1,277/yr. However, if you were to go for the cheapest fix on the market now, you’d be paying £1,700/yr-over double the initial cost.