The Energy Price Guarantee: how does the freeze affect your energy bills?

Prime minister Liz Truss has capped energy bills at £2,500 for the average household from 1 October 2022. This is still higher than 2021, but it’s still cheaper than energy prices on the wholesale market, which dictate Ofgem’s energy price cap. What does the energy price freeze mean for your energy bills? And what happens if you’re on a fixed rate tariff?

Energy meter with coins
 
 

What is the Energy Price Guarantee?

The Energy Price Guarantee is a cap on energy prices and it’ll last for 2 years. The scheme applies to the UK and Northern Ireland. 

It replaces Ofgem’s energy price cap, which was rapidly increasing due to the rising cost of wholesale energy. This was due to increase to £3,549 on 1 October.

The new scheme means that a typical UK household will now pay up to an average of £2,500 per year for their energy bills. This is expected to save the same household at least £1,000 a year. 

Remember, this isn’t a cap on the cost of your energy bill. The Energy Price Guarantee limits the amount you’re charged for each unit of gas and electricity. The price of your bill still depends on your energy usage.

 

Energy prices at a glance

Energy prices are changing under the new guarantee. Here’s what they could look like if you’re on a fixed or standard variable rate tariff, as well as the standing charge:

Fixed tariff Standard variable rate Standing charge
Electricity
Reduced by 17p/Kwh
34.0p/kWh (inc. VAT)
46p per day
Gas
Reduced by 4.2p/Kwh
10.3p/kWh (inc. VAT)
28p per day
 

Your bill and the Energy Price Guarantee

The government has set out energy unit prices for gas and electricity and passed them onto energy suppliers so they can calculate bills for 1 October. This applies to both fixed and standard variable rate tariffs

Average standing charges will stay at the same rate:

  • 46p per day for electricity 
  • 28p per day for gas 

I’m on a standard variable rate tariff, how does the Energy Price Guarantee affect this?

If you’re on a standard variable rate tariff, your energy supplier will adjust your energy bill automatically to:

  • 34.0p/kWh for electricity (inc. VAT)

  • 10.3p/kWh for gas (Inc.VAT)

These prices come into effect on 1 October. You don’t need to take any action as your supplier will apply these rates automatically. 

I’m on a fixed tariff, how does the Energy Price Guarantee affect this?

If you’re on a fixed rate tariff, it’s likely you’re on a higher rate because of the recent energy price rises. Your energy supplier will reduce your energy bill automatically by:

  • 17p/kWh for electricity 

  • 4.2p/kWh for gas 

These prices come into effect on 1 October. If you’re on a fixed tariff you don’t need to take any action as your supplier will adjust your rates automatically.

I’m on a prepayment meter, how does the Energy Price Guarantee affect this?

If you have a prepayment meter, the rates you pay per unit of energy will reduce in line with the Energy Price Guarantee on 1 October. Hopefully this means the money you put onto your meter will last longer this winter. 

The government says there’s still a small difference between the unit cost for a prepayment meter customer and other bill payers. But this would have also been the case if the price cap had remained in place.

 

I pay for my energy as part of my rent, will the Energy Price Guarantee still apply?

The Energy Price Guarantee applies if you have a domestic energy account - this means the energy isn’t used for business purposes. If your landlord has a domestic energy account for the property you’re renting, then the Energy Price Guarantee should apply.

If your landlord does have a domestic energy account, they should be reselling your energy to you based on your usage. They shouldn’t be making a profit from your energy payments and must comply with the maximum resale price rules. 

The maximum resale price is the most that anyone can charge for resupplying gas or electricity that has already been bought from an authorised supplier. In short, the person reselling the energy shouldn’t be charging more than what it was bought for. You can find more information on this at Ofgem.

If you’re on an ‘all inclusive’ rent contract, you might be on a fixed energy tariff, which is usually included in your rental charges. If this is the case:

  • The government is encouraging landlords to come to an agreement with their tenants on the Energy Price Guarantee. It’s looking into options to ensure landlords follow this, including emergency legislation.

  • The landlord’s fixed rate may already protect you from the impact of the increasing energy prices, so there may not be any changes.

If you have any doubts speak to your landlord. If this hasn’t worked, speak to Citizens Advice

 

How much could I save with the Energy Price Guarantee in place? 

This can depend on the type of home you have and your energy usage. The government predicts that the average household could save around £1,000, and the average flat could save around £700. Here’s an idea of what you could save based on the type of home you have:

Property type  Under Ofgem’s October price cap Under the Energy Price Guarantee  Difference
All dwellings 
£3,550
£2,500
£1,050
Houses
£3,800
£2,650
£1,150
Detached 
£4,700
£3,300
£1,400
Semi-detached
£3,800
£2,650
£1,150
End terraced 
£3,500
£2,450
£1,050
Mid terraced
£3,300
£2,350
£950
Bungalow
£3,500
£2,450
£1,050
Flats
£2,450
£1,750
£700
Converted flat 
£2,750
£1,950
£800
Purpose built flat
£2,400
£1,750
£650

Source: GOV.UK, based on 2019 median consumption (Dual fuel, annual basis)

 

Does the £400 energy bill discount still apply?

The government is still applying the £400 energy bill discount to energy bills for all households. 

This was announced earlier in the year, and replaced the £200 repayable loan that was announced in February.

The £400 discount should be automatically applied to your energy account if you pay by direct debit. You should get it automatically in 6 monthly instalments.

Those on prepayment meters should get the payment through vouchers. You should get these by text, email or post. 

If your landlord handles your energy bills, it’s worth speaking to them about how they’ll apply the discount to your energy bill. 

 

What can I do now?

There still aren’t many options for switching energy providers at the moment. But you can prepare for when the energy market returns by getting switch ready. It only takes a minute.

  • Log in to your Confused.com account and confirm your energy details

  • We'll send personalised deals straight to your inbox

  • When you're happy with your deal, we'll complete the switch for you

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You can also look at ways to reduce your energy consumption

 

What support is available if I can’t pay my energy bill?

If you’re struggling to pay your energy bill, you should contact your supplier straight away. Under rules set out by Ofgem, they should work with you to agree on a payment plan. You can ask them to:

  • Review your payments and debt repayments

  • Give you a payment break or reduction in payments

  • Give you more time to pay

  • Provide access to hardship funds

  • Provide advice on how to use less energy 

  • Get Priority Service Registration - this is a free support service if you’re in a vulnerable situation 

A few suppliers offer grants to help people pay their energy bills, so It’s worth speaking to yours. Some of the energy supplier grants are: 

There are also government energy grants like: 

  • The Winter Fuel Payment - you could get this if you were born on or before 25 September 1956

  • Cold Weather Payment - you get a £25 payment for every 7 days of below freezing temperatures between November and March  

  • Warm Home Discount - this is a £150 discount for people getting Pension Credit or for those in low-income households

If you’re in Scotland or Wales:

  • Child Winter Heating Assistance - You get an annual payment per disabled child and young person under 19 living in Scotland 

  • Winter fuel support scheme - this is a £200 annual payment for households in Wales who have certain benefits

For more information on what support is available, read our guide on energy grants

You might also be able to claim for a cost of living payment if you receive other benefits. You can find more information at GOV.UK.

 

Does the Energy Price Guarantee apply to businesses?

A similar scheme should be on offer for businesses to protect them from soaring energy costs. At the moment, there’s no firm start date for the scheme and further details should be announced in the next few weeks.

The scheme should last for 6 months, and is being reviewed in 3 months to make sure vulnerable businesses get the support they need.

Before the Energy Price Guarantee announcement, businesses weren’t protected by Ofgem’s energy price cap. If the Energy Price Guarantee wasn’t introduced, businesses projected an increase in energy costs of more than 500%.