Gas and electricity prices under the Energy Price Guarantee and beyond

This briefing looks at the Energy Price Guarantee and how it works in Great Britain alongside the existing energy price cap. It includes data on price caps and wholesale prices for gas and electricity.

What is the Energy Price Guarantee?

Following concerns over the effect of a proposed 80% increase in energy prices energy price rises, then Prime Minister Liz Truss announced that the Energy Price Guarantee (EPG) would be introduced from 1 October 2022 and last two years.

The EPG was to reduce the extent of price increases for domestic customers. Under the scheme, the Government sets maximum prices for gas and electricity and compensates energy suppliers for providing these at below cost prices.

Maximum energy prices for customers on standard variable tariffs are set by the lower of the EPG or the energy price cap. The EPG was lower during the period October 2022 to June 2023. The price cap for July to September 2023 is lower than the EPG, so prices fell to the cap level in July 2023. The cap for October to December 2023 will be somewhat lower still.

How much will customers pay?

The EPG sets maximum unit costs. Maximum daily standing charges are set by Ofgem’s price cap. The EPG level is normally expressed as an annual figure. This is the annual bill that dual fuel (gas and electricity) direct debit customers with typical consumption levels would face if these prices remained constant across a year. It was originally set at £2,500 for two years from October 2022 to September 2024. It was later changed to £2,500 for the first nine months (October 2022 to June 2023) followed by an increase to £3,000 for the following nine months (July 2023 to March 2024).

The price increases under the EPG were softened for the first six months by the £400 Energy Bill Support Scheme. This was being paid in six separate monthly instalments from October 2022 to March 2023. The Government announced on the morning of the Spring Budget 2023 (15 March 2023) that the planned 20% increase in the EPG would be delayed from April to July 2023.

Without the EPG, customers would have paid more under the price cap between October 2022 and June 2023.

The price cap for July to September 2023 is £2,074. As this is lower than the EPG, customers on standard variable tariffs with typical consumption have seen bills fall in line with this cut in prices. The cap will fall to £1,923 for the period October to December 2023.

Annual bills are not capped. Households which use more energy will pay more, those which use less will pay less.

Prices vary by region and are currently higher for customers paying by quarterly bills.

Will energy prices fall?

Wholesale energy prices have fallen from their summer 2022 peaks but there was a substantial lag before these feed through to consumers. The reduction in the price cap in April 2023 was not large enough to take it below the EPG level, so customers did not see their bills fall until the cap fell below the EPG in July 2023.

Source: Ofgem, Gas prices: Forward delivery contracts – weekly average (GB)

The fall in the price cap in July 2023 took it to below the EPG level, so customers on standard variable tariffs saw a fall in their bills. Standing charges remained the same. Unit prices fell by 27% for gas and 9% for electricity. The October to December 2023 cap will fall further to £1,923. It is forecast to remain around £2,000 in 2024 (on a like-for-like basis).

While lower than current prices, these future prices are considerably higher than pre-2022 levels. Forecasts of the price cap are uncertain so there is no guarantee that prices will remain at this level in 2024.

Sources: Energy price cap (default tariff): 1 October to 31 December 2023 ( Model – Default tariff cap level v1.19); Cornwall Insight, Predictions and Insights into the Default Tariff Cap

Lower wholesale prices have led some suppliers to start offing fixed tariffs again. However it’s likely that they will be cautious in their pricing and any return of competition to the market is likely to be slow. Cap prices in October to December 2023 will still be more than 50% higher than in winter 2021/22.

Revised Typical Domestic Consumption Values

Ofgem plans to introduce new lower Typical Domestic Consumption Values (TDCVs) for all its relevant publications from October 2023. This will make an average bill for typical consumption look lower, even if prices per unit of energy are unchanged. The next price cap (for October to December 2023) will be illustrated using these lower levels of consumption.

Most statistics included in this briefing will continue to use the current TDCVs until October 2023. Where relevant, ie. for price cap forecasts, data on average bills will be presented using both the current and the new TDCVs alongside unit prices to avoid potential ambiguity.

Further information

The latest Government guidance on the EPG can be found on the Energy Price Guarantee page.

The Library briefing Domestic Energy Prices includes more analysis of the causes of recent prices rises, historical data and information on prices of other domestic fuels.

The briefing Introduction to the domestic energy market explains key concepts in the domestic energy market and looks at how the market is structured, how bills are calculated and the challenges facing energy supply.

The briefing Constituency casework: Government support for energy bills includes answers to frequently asked questions about Government help with energy bills.

The data dashboard Local area data: fuel poverty provides fuel poverty statistics for constituencies in England and local authorities in Scotland, Wales and Northern Ireland.