What is the Energy Price Guarantee?
The 80% price cap this autumn for energy bills has been canceled. Prices will still rise, but by far less.
The current price cap will be replaced at the beginning of October by a 27% higher ‘price guarantee rate’ which will be set to last for two years. This will take typical energy bills up from £1,971 each year to £2,500.
There will be a £400 flat reduction for all UK households this winter. When this amount is taken into account, the average rise over the current costs will stand at 6.5%
In practice, this means that UK households will either receive, or have their bills reduced by £66 or £67 each month from October 2022 to March 2023.
This price guarantee rate has been promised to last for two years.
While the new price guarantee is much more than last winter, it is far cheaper than it would have been this upcoming winter.
How much will I be charged for energy now?
It is important to note that the new energy price guarantee is not a bill cap. Instead it limits the maximum amount that energy suppliers can charge per unit of energy used.
One unit or kilowatt hour (kWh) is the equivalent of turning on the oven for 30 minutes. From the beginning of October, the average unit price for customers paying by direct debit will be limited to 34p/kWh for electricity and 10.3p/kWh for gas.
Exact costs will of course depend on usage. For instance, a household with an occupation of just one or two individuals will see their average annual bills hit £1,731 this October, up from £1,365.
A medium household with two or three people will see their bills reach £2,500 a year under the new price cap, up from £1,971. Finally, a larger household with four to five occupants will see their bills rise to £3,471 a year under the new price cap.
Should I abandon my fixed rate energy deal?
Around 15% of the UK’s population have locked into a fixed deal, with the majority on their suppliers’ standard variable tariffs set by the new energy price cap.
As such, the 15% will be wondering how the new cap will affect their ‘fixed’ bills. For some who locked into cheap tariffs prior to the rising prices, this means that they will not see any change to their bills if their unit price is below the new set levels up until their fixed offer expires.
For households who signed onto more expensive fixed deals, this could mean that they will end up spending more than the price cap in the short run.
However, the UK Government confirmed that those who moved onto fixed rate deals will still be entitled to a rate reduction on their tariffs, equivalent to the freeze. As such, fixed rate bills are set to be reduced by 17p/kWh for electricity and 4.2p/kWh for gas.
Further, some of the UK’s most popular energy suppliers including British Gas, Octopus and E.On will not charge their customers a fee for choosing to leave their fixed deals.
Do I have to pay for energy even if I don’t use it?
Yes, you will be required to pay for having access to energy even if you do not use it. The daily standing charges for access to energy rise greatly earlier this year in April, and are set to rise again slightly in October.
If no gas or electricity is used, the average direct debit standing charge is currently an average of £273 a year. This amount varies slightly by region due to the different costs to transport power. For instance, it will cost those in London £225 a year, while costing those in South West England £296 a year.