Understanding the energy market, as well as how it affects your overheads is not an easy task, which is why most businesses big and small seek advice from a specialist energy consultant to not only get the best tariff for their business but also undergo audits, reduce costs and navigate the market’s complexities.
As was seen during the energy crisis of 2021 and 2022, there are several complicated mechanisms that affect tariffs and overall costs to businesses that would otherwise seem somewhat unrelated.
One good example of this, and a particularly contentious subject in the early 2020s was the energy price cap, something that has been regularly amended, altered and debated ever since it was first implemented.
Despite being a domestic customer-focused cap, and one that does not affect every customer at that, it has become a useful barometer for energy prices in the country as a whole, as well as having a particular impact on smaller businesses.
What is the energy price cap, what does it measure, when was it implemented and what does it mean for businesses?
What Is The Energy Price Cap?
The energy price cap as it is known today is a backstop on the maximum amount a typical household will pay for their electricity and gas usage.
It is officially calculated as the cost per kilowatt hour (kWh) for people on a default standard
variable tariff and pay their energy bill either when the bill arrives, via Direct Debit, using a prepayment meter or using an Economy 7 meter.
The cost is currently capped as of 1st July 2025 at 25.73p per kWh, with a daily standing charge of 51.37p for electricity. For gas, the price is 6.33p per kWh with a 29.82p daily standing charge.
To calculate the annual average bills, something that is incredibly useful when explaining the cap and how it helps people, Ofgem uses a typical household calculation of 2700 kWh of electricity and 11,500 kWh of gas per year, which creates a total annual bill for consumers.
In this case, the total typical bill under the energy price cap is £1,720 per year from 1st July 2025, although this amount can be changed every three months based on the market rates for wholesale gas, which can affect both gas and electricity energy prices in the UK.
Of course, for larger households and especially for businesses, the overall bill will often be more expensive, and most tariffs are cheaper per kWh than the price cap, but it provides a useful barometer of average energy prices.
When Was It Implemented?
Whilst there had been some limited price caps implemented for people on prepayment metres before 2018, the implementation of the Domestic Gas and Electricity (Tariff Cap) Act 2018 was the turning point of the modern electricity market.
It became a contentious issue almost immediately, as it could only be altered every six months, which was too rigid to take into account changing wholesale costs, operating expenses to maintain the network and policy costs to help some people and small businesses.
Its biggest challenge came in 2021 with the energy price crisis, and the inability of some suppliers to charge the wholesale cost to consumers led to the special administration of Bulb Energy and the liquidation of several other suppliers.
It was temporarily replaced with an ‘energy price guarantee’ that would act as a price cap for customers but would involve the government paying for the remainder. At the peak of the energy crisis, the default tariff would have cost over £4,000 without these interventions.
How Does The Price Cap Affect Businesses?
Unlike domestic customers, there is no price cap for businesses, but there are a remarkable number of ways in which the price cap can affect business operations.
The most direct way is that the price cap typically reflects wholesale price trends for the energy market in real terms. If the cap is being increased, it is typically due to market forces lifting the wholesale prices higher, which will affect business customers as well.
It can be a useful barometer, particularly when exploring whether to keep your current fixed rate tariff or take your chances to seek out a new, more favourable deal.
This is particularly important for businesses which require a lot of energy to operate.
Finally, and perhaps less directly, energy bills affect the cost of living, which in turn affects disposable income and the ability of customers to spend money in some retail and hospitality sectors.
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