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Energy price guarantee rates: Your seven key questions answered

Paloma Kubiak
Written By:
Paloma Kubiak

The unit rate and standing charge for gas and electricity from 1 October have been published. This is what it means for your energy bill.

For the estimated 24 million people on standard variable (default) tariffs, the average unit price for dual fuel customers paying by direct debit will be set to 34p/kWh for electricity and 10.3p/kWh for gas (including VAT), from 1 October 2022.

Meanwhile, the Department for Business, Energy and Industrial Strategy (BEIS), confirmed average standing charges will remain in line with levels set by regulator Ofgem for the default energy tariff cap from 1 October.

This is set at 46p per day for electricity and 28p per day for gas for a typical dual fuel user paying by direct debit.

It comes after the new Prime Minister Liz Truss last week announced an energy price guarantee that will curb the average energy bill to £2,500 a year over the next two years.

It will save the average household £1,000 a year off the expected £3,549 average annual bill next month – an 80% hike from the current £1,971 paid.

Use more, pay more

However, the energy price cap (or guarantee as announced by the government) is a limit on the unit rate and standing charge that energy suppliers can charge. It is not a limit on bills as the figure is calculated using average energy use in the typical home (2,900kWh of electricity and 12,000kWh of gas).

If you use more energy, your bills will be higher while using less energy will mean your bills will be lower than the headline average figure.

While energy suppliers will adjust standard variable tariffs automatically, confirmation of the unit rates and standing charges now gives millions of people vital information which can help you work out what your annual bills will look like. YourMoney.com has asked regulator Ofgem if it has a calculator to help customers work out their bills. We’ll update this news story once we hear back.

But for now, as an example, someone who uses 10,000 kWh gas and 3,000 kWh electricity a year will pay £2,320.10 based on the following calculations:

A gas standing charge of 28p x 365 days = £102.20
An electricity standing charge of 46p x 365 days = £167.90
Gas unit price of 10.3p x 10,000kWh = £1,030
Electricity unit price of 34p x 3,000kWh = £1,020
TOTAL = £2,320.10.

Source: uSwitch

Your questions answered

1. What about fixed tariff customers?

As at end of July 2022, there are 6.2m customer accounts on fixed tariffs and 25.5m customer accounts on standard variable tariffs. Currently 20% of accounts are on fixed tariffs, down from 27% in April 2022.

The expectation is that this number will continue to decrease as at present fixed tariffs are more expensive than the Price Cap and more customers will be moving to standard variable tariffs as they come to the end of their fixed-term contracts.

The calculation above only affects those on default or standard variable energy tariffs.

If you’re on a fixed tariff at a higher rate, unit prices will be reduced by 17p/kWh for electricity and 4.2p/kWh for gas. We’ve contacted Ofgem to find out more information on this.

BEIS said energy suppliers will adjust fixed tariffs automatically so customers on fixed tariffs do not need to take any action.

2. What do prepayment meter customers need to know?

The prepayment meter (PPM) cap level was set to increase to £3,608 (£1,591 increase) from 1 October. Customers on prepayment meters pay an additional £59 compared to direct debit customers.

For these 4.5 million customers, the energy price guarantee will be applied to the rate you pay for each unit of energy, so the money you put on the meter will last longer than would otherwise have been the case this winter, BEIS said.

But as is the case with the ‘price cap’ under the energy price guarantee, there will be a small difference between the unit cost for a pre-payment meter customer and other bill payers.

3. I’m off grid, what happens with my bills?

As the government said last week, households not on standard gas or electricity contracts, such as those living in park homes or on heat networks – and so outside the scheme – “will be no worse off” and will receive comparable support through a discretionary fund. We await further details.

4. I pay energy as part of my rent. What will I pay?

Where a landlord resells electricity to tenants based on usage, they must comply with the maximum resale price rules which say they must not make a profit.

Where a landlord charges an ‘all inclusive’ rent, BEIS said they are “encouraged to come to an agreement with you on the energy price guarantee in line with the arrangement in your tenancy agreement”. It added it is  “exploring a full range of options to ensure this happens”.

5. I live in Northern Ireland. Am I protected in the same way?

The energy price guarantee applies to those living in England, Scotland and Wales as there is a different energy system in Northern Ireland. The government said it is working with Northern Ireland partners including the NI Utility Regulator and NI energy suppliers “to ensure that equitable level of support can be delivered to consumers and businesses in Northern Ireland”.

6. Are businesses protected under the price guarantee too?

Truss announced that the government would also support businesses, charities and public sector organisations with their energy costs this winter, offering the equivalent guarantee for six months. After this initial six-month scheme, the government will provide further support for vulnerable industries, such as hospitality.

BEIS added there will be a review in three months’ time with further details to be published shortly.

7. Will I still receive the government’s cost of living energy support payment?

Yes. The government confirmed the energy price guarantee will work alongside the cost of living support payments as previously announced. This includes the £400 Energy Bills Support Scheme which will be paid in six instalments from October. Meanwhile, the most vulnerable UK households will also continue to receive £1,200 of support provided in instalments over the year.