The £2,500 energy price guarantee isn’t the maximum bill you’ll pay
Widespread confusion and misunderstanding of the government’s £2,500 energy price guarantee means many Brits may be surprised by their upcoming utility bills.
There was relief when new Prime Minister Liz Truss announced the energy price guarantee, curbing average bills to £2,500 a year over the next two years.
This move by the government to help 24 million people on default tariffs amid the cost-of-living crisis would shave £1,000 off typical energy bills, considering they were due to rise to £3,549 a year on 1 October.
Many will see the headline figure and think it means that’s the total amount they’ll pay for their energy use over the year. It isn’t.
We’ve seen people post on forums that they’ll no longer worry about their bills this winter; that they can keep the heating and lights on as they mistakenly believe they won’t pay a penny above £2,500.
But this assumption is wrong. It’s vital to know this headline figure is calculated using average energy use in the typical home.
The more energy than average that you use = higher bills, i.e. above the £2,500 figure
The less energy than average that you use = lower bills i.e. below the £2,500 figure.
Cap on unit rates and standing charges
Confusion may relate to the wording of Ofgem’s (the sector regulator) energy price cap, now superseded by the energy price guarantee. When you think of a ‘cap’ or ‘guarantee’, you think of a maximum limit or threshold and may feel you’re protected or even impervious to the effects.
However, the cap or guarantee is a limit on the unit rate and standing charge that energy suppliers can charge you – the billpayer. A unit rate is measured in kWh or kilowatt hours.
Ofgem’s medium-use figures are 12,000kWh for gas and 2,900kWh for electricity. The average unit rate for dual fuel customers paying by direct debit will be set at 10.3p/kWh for gas and 34p/kWh for electricity (including VAT).
Meanwhile, the standing charge is the automatic and fixed part of your energy bill – the energy supplier’s cost to get energy to your home. It is charged every day.
Ben Gallizzi, energy expert at Uswitch.com, explained: “Standing charges cover the cost of supplying gas and electricity to your home and keeping the power grid working.
“Standing charges vary across the country due to the differing costs of transporting power to each region.
“They also include service administration fees, connections to and maintenance of the energy network, government schemes to help reduce carbon emissions and fuel poverty, and the cost of energy suppliers exiting the market.”
This is capped at 28p per day for gas and 46p per day for electricity for a typical dual fuel user paying by direct debit.
All of this taken together means the average energy billpayer will pay £2,500 a year, based on the following calculations:
- Gas standing charge: 365 days of the year x 28p = £102.20 a year
- Electricity standing charge: 365 days of the year x 46p = £167.90 a year
- 12,000kWh gas at 10.3p/kWh = £1,236
- 2,900kWh electricity at 34p/kWh = £986
- TOTAL £2,492.10 (rounded up to £2,500 as unit rates and standing charges are rounded up to one decimal place: Source Uswitch).
How to work out your annual energy bill
For standard credit customers (not pre-payment meter customers), you’ll need to dig out your annual energy statements which will have figures relating to how much energy you use (kWh). Check the standing charge with your energy supplier.
Uswitch said: “You can contact your supplier to find out your personal standing charge, but it may be best to wait until you receive a letter or email from them confirming what you will be paying from 1 October.”
As above, you’ll then be able to work out how much you’ll pay based on the energy you use. However, this may be more or less as it’s based on past use, not present use, but should give you a ballpark figure.
The government also confirmed that the energy price guarantee is on top of existing support offered to households, including the £400 rebate, as well as more targeted payments for people in receipt of benefits or for pensioners.
However, if you think you’ll struggle to cover your energy bills, see YourMoney.com’s Seven ways to get help with energy bills this winter for more information.