How the price cap affects energy bills

How the price cap affects energy bills

By: Ryan Jay

12 Aug 2020

From Thursday 1 October, Shell Energy customers on a flexible tariff will notice a change in their energy bills. This is due to a review in the energy price cap by Ofgem (the government’s energy industry regulator).

Ofgem reviews the price cap every six months to make sure that the price you pay your energy supplier is a fair reflection of the actual cost of providing you with that energy. The cost of providing your energy is made up of many different factors, including wholesale costs, policy costs and network costs. When those costs come down as a whole, the price cap goes down. If those costs go up, the price cap goes up with it. Think of it as your way of having peace of mind that the price you pay is always justified.

A decrease in price for both gas and electricity

If you’re on a flexible tariff this will affect you. You’ll have received an email or letter to let you know how your bills will change. In a typical household, customers will pay £84 less on their annual energy bill.

We supply you with 100% renewable electricity as standard. Whatever the level of the price cap, that won’t change. That's why when the price cap goes down, we’re delighted that customers can pay less while still getting access to renewable electricity. And with such a decrease in wholesale costs in this price cap, it’s a reason to be cheerful if your energy rates have been impacted.

But while many customers will see a saving, it’s important to remember that this change in the price of energy is for flexible tariff customers only. So, if you’re on a fixed energy tariff that’s set for a defined period, you won’t see any change in the amount you pay for your energy. But you have the advantage of being in complete control of your energy rates, as a fixed tariff protects you against any future price rises.

When will the changes take effect?

The price cap comes into place on Thursday 1 October. We’ve been busy behind the scenes contacting customers to let them know how they’ll be affected.

Many customers use the price cap as an opportunity to reflect on their energy bill. Maybe the time is right to choose a tariff that's better suited for them? That’s why if you're a flexible tariff customer we’ll always give you options. You'll get the chance to switch to a fixed tariff if you need security against future price increases.

The next review of the price cap will likely happen in around six months time. It might not change then, and you’ll continue to pay your reduced rates. Prices may drop further, or then again, they might rise. We can’t predict what will happen, but if you’d like to choose a fixed tariff so that you have certainty over what you’ll pay for your energy, you can talk to us about the different tariff options available.

To find out more about how the price cap works and how it’s determined, the Ofgem website has loads of information.