What is the energy price cap and how does it work? | The Sun

MILLIONS will see their yearly energy bills fall by up to £151 this autumn after a new price cap was announced.

From October 1, a typical household on a dual-fuel gas and electricity tariff will pay £1,923 a year for their bills.

The change comes after Ofgem announced the new energy price cap – but was is it and how does it impact what I pay for gas and electricity?

Here's everything you need to know.

What is the energy price cap? 

The price cap on energy bills was introduced in January 2019 as a way to prevent households being ripped off by their energy suppliers.

It is currently £2,074 a year on average, but will fall to £1,923 from October 1.

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The price cap changes every three months, and only impacts UK households on default or variable tariffs.

This still accounts for roughly 29 million customers though, according to Ofgem.

If you are on a fixed-term deal the price cap doesn't apply to you.

The cap is calculated based on the wholesale price of gas and electricity.

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It also includes allowances for tax, charges paid to the energy networks, green levies and social payments.

The reason it has gone up so much in the last 18 or so months is partly due to Russia limiting its gas supply to Europe.

But there's also been high demand from Asia which has seen prices surge.

The UK also imports more than two-thirds of its gas which is subject to global price swings making prices more volatile and likely to rise.

How does the energy price cap work?

The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.

That means despite the energy price cap being £2,074, you might pay more or less than this amount, depending on your usage.

Ofgem also sets a maximum daily standing charge which is what households have to pay in order to have their home connected to the National Grid.

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