New price cap for January 2025 has been announced, and it's another increase

The energy regulator Ofgem has announced that the energy price cap will increase by 1.2% in January 2025. Even though it's a smaller increase than we have seen previously, it's still important to know how to save energy at home if you want to minimise the increase to your bills.

The energy price cap was first introduced on 1 January 2019 and is expressed as an average annual figure. But the cap is actually a limit on how much your energy supplier could charge per unit (often referred to as kilowatt hours or kWh) of energy you use.

It's worth remembering that the price cap actually varies by region and how people pay their bill. The actual rates you are charged will depend on where you live, how you pay your bill and the type of meter you have. The overall figure is also based on typical use - if you use more energy than the typical household, you will pay more than the cap. If you are struggling to pay, energy bill help is available.

What is the new price cap?

As the cap takes into account the wholesale price of gas, which changes all the time, the cap is updated every three months. And Ofgem has just announced the new cap for the period between 1 January 2025 and 31 March 2025 will be set at £1,738. This is an increase of £21 on the existing October 2024 price cap, which currently sits at £1,717. The current cap was an 10% increase on the previous figure.

The stated figure is calculated as an average across the England, Scotland and Wales, and is based on typical use for those who pay their energy bills by Direct Debit. Under the new cap, the average price per unit of electricity will increase from 24.5p to 24.86p, and the average price per unit of gas will increase from 6.24p to 6.34p. On top of these unit costs, you also pay a daily standing charge, which will be ever so slightly reduced in the first three months of 2025.

Darren Gough, Consumer Money Expert from Hotukdeals.com, comments: 'The announcement of another increase in energy bills is a tough blow for households already navigating a financially challenging period. With the new year typically bringing colder weather and longer nights, energy usage is set to rise, making this increase particularly difficult to absorb. For many, this differs from the fresh start to 2025 they had hoped for.'

While no-one is a fan of rising prices, especially after years of a really high cost of living, this slight increase is nothing compared to the huge spikes we have seen in recent years. At its highest, the energy price cap spiked at £4,279 in January 2023.

Does the energy price cap apply to me?

If you are on your supplier's standard or default energy tariff, then your bills will be calculated using the energy price cap. The standard tariff is the supplier's variable tariff, which can go up and down at any point in the year at the supplier's discretion. If you did not choose a tariff, then you are on a default tariff. It also applies to those with prepayment meters.

Different to a standard variable tariff, if you are on a fixed rate energy deal, where the price of your energy is locked at a set rate for a certain period, then the energy cap does not apply to you until your contract ends. A fixed contract is anything between 12 months to two years. This doesn't mean you pay a set amount every month, just that your unit prices remain the same throughout the duration of your fixed tariff. If you use more energy one month compared to the month before, your monthly bill will be higher to correspond with the increased usage.

When will the next price cap announcement be?

Ofgem will announce the price cap for the period between 1 April 2025 and 30 June 2025 on the 25 February. It is not yet known whether it will go up or down.

The price cap used to be updated every six months, but that meant that it took much longer for any wholesale gas price reductions to be passed on to households. With the cap now updated every three months, any savings can be passed on much quicker.

How to limit the impact of the price cap increase

Rising bills are never welcome, but there are things you can do to limit the impact. Try to incorporate as many energy saving practices into your home as possible - this might be turning your thermostat down by a single degree, avoiding using your tumble dryer or switching any incandescent bulbs to LED alternatives. Knowing how to keep your house warm in winter can also help you make the most of the heat you do generate.

For a longer term solution, you could try thermal blinds to keep the heat in, too. James Longley, managing director at Utility Bidder says: 'Lifestyle changes which you will reap the benefits of include minimal tweaks such as switching your appliances off when you’re not using them, rather than leaving them on standby, or more long-term solutions include removing your gas boiler or installing solar panels.'

But make sure you swot up on the energy-saving myths doing the rounds, as they could end up costing you money.

You can also look to see if there are any fixed price energy deals that are considerably cheaper than the current cap. Use a price comparison site, such as our sister site Go.Compare to see what's available. Remember though that if you fix and the energy price cap drops, you could end up paying higher than the cap for the duration of your fix. However, if the price cap rises during your fixed term, you will be protected from the hike.