What is the energy price guarantee and how does it work? Here we cover all the details.
Recently a new energy initiative was announced to address the ongoing energy crisis, namely, the Energy Price Guarantee.
But what is the guarantee? How does it work? Do you need to apply?
We’ll answer these questions and explore additional details in the following guide.
Important update: The Energy Price Guarantee ended on the 10th of April 2024.
What is the Energy Price Guarantee?
Put simply the Energy Price Guarantee or EPG is designed to limit what an average household in Great Britain will pay annually for electricity and gas.
The limit, at present, is around £2,500 per year (this is set to increase to £3,000 on April 1st 2023).
The guarantee will begin in November albeit it will be backdated to October 1st and continue for a two-year period.
Of course, the guarantee for each household will differ with approximately £2,500 being the average.
Therefore, lower-income households can expect a lower guarantee and higher-income households, a more expensive guarantee.
The £2,500 average figure is simply a neat way of summarizing what the guarantee is offering across the board.
The average household is expected to save around £1,000 per year if we’re looking at October 2022 prices.
Of course, actual savings will differ over time depending on how energy prices change.
Please note that the EPG applies to Great Britain. If you live in Northern Ireland, different rules will apply.
What other energy bill support is there?
Of course, you can supplement the Energy Price Guarantee with other schemes. For instance, there is the Energy Bills Support Scheme which launched in October 2022.
This scheme, which (like the Energy Price Guarantee) covers Great Britain involves providing a £400 discount on energy bills for a six-month period.
The Energy Bills Support Scheme currently provides a £400 discount on energy bills
So not only will the Energy Price Guarantee reduce your energy bills for two years to come but the Energy Bills Support Scheme can reduce your bills by a further several hundred pounds.
Moreover, UK households that are considered the most vulnerable are currently receiving £1,200 of support which is provided in instalments paid over the course of the year. These will also continue.
How does the guarantee work? And must I apply?
Now that we’ve explained the gist of the Energy Price Guarantee, let’s delve into how it works.
But before all else, you should know that you do not need to apply. The guarantee is applied automatically. You don’t have to do anything on your end.
Therefore, if you receive any sort of message (email, text, etc.) about an application or otherwise, it’s likely a scam. There are some exceptions, however.
For instance, if you are a pre-payment meter customer with a traditional meter, you may receive redeemable vouchers through email, SMS text, or post.
If you have any doubts contact your energy supplier through their official channels (e.g., their phone number or their email address listed on their official website) to verify that you are not being scammed.
As touched on, the Energy Price Guarantee limits what a household can be charged per gas or electricity unit.
So, the more energy you use, the more you will still pay but your energy payment rate will be lower.
Please be aware that how exactly the guarantee works will differ depending on a range of factors. Let’s explore how the EPG will work in different scenarios:
Receiving a regular bill
If you receive a regular bill (i.e., monthly, quarterly, or otherwise), the guarantee will apply when your bill is determined. You would also see the benefits of the Energy Bills Support Scheme, again reducing your bill by some £400.For households on a standard variable tariff
If you are paying for dual fuel via direct debit, you will pay no more than 10.3p per kWh for gas or 34p per kWh for electricity. These figures include VAT. Energy suppliers will have adjusted their standard variable tariffs automatically before the guarantee has come into effect. Again, the Energy Bills Support Scheme will also apply.For a household with a fixed tariff rate
In this case of a fixed tariff, you will benefit from a unit price reduction of as much as 4.2p per kWh of gas or 17p per kWh of electricity. This, of course, assumes that pre-EPG rates are above the EPG itself. Direct debit customers will also benefit from a unit price floor. These will be an average of 34p per kWh for electricity and 10.3p per kWh for gas. If you are below the floor unit prices, you will remain below these prices albeit no new discount will apply. Energy suppliers will set new fixed tariff rates automatically. You do not need to do anything on your behalf. You would receive the Energy Bills Support Scheme along with the EPG.For a household on a pre-payment meter
If you are a pre-payment meter customer, the government will ensure you will benefit from the Energy Price Guarantee and Energy Bills Support Scheme. You won’t need vouchers for the former, but you may need to be eligible for the latter. Since the EPG adjusts the rate you’ll pay per energy unit, the money you add to your meter will go longer than it would otherwise. Again, this discount will apply automatically. There will (as happens with the price cap), be a difference between what the cost of an energy unit is for pre-payment meter customers and other bill payers in relation to the EPG. Pre-payment meter customers will also benefit from the £400 Energy Bills Support Scheme. All payments will be made automatically. Smart meters will receive the relevant credits automatically. However, if you use a traditional prepayment meter, you’ll receive your discount either via redeemable vouchers (which would be sent by email, post, or SMS text) or an automatic credit when you top up in the usual way. If you are expecting a redeemable voucher but hear nothing, do confirm that your contact details are up to date. Please be aware that Payzone outlets cannot accept these vouchers.
But what about standing charges? Customers who are on default tariffs will see their standing charges capped with Ofgem levels set from October 1st.
Again, this applies to Great Britain with different rules applying to Northern Ireland.
The Ofgem levels mentioned above are 28p each day for gas and 46p a day for electricity for the average fuel customer who pays through direct debit.
What am I likely to pay?
When you see the £2,500 figure referred to as a household average, you may be wondering how close you are to the average bills.
We’ve put together a list of what given households will pay (approximately) with the EPG introduced.
Household Payment Table:
Type of Home | Initial October Price Cap | With EPG Added | Savings with EPG alone |
Semi-Detached House | £3,800 | £2,650 | £1,150 |
Detached House | £4,700 | £3,300 | £1,400 |
Bungalow | £3,500 | £2,450 | £1,050 |
End Terraced House | £3,500 | £2,450 | £1,050 |
Mid Terraced House | £3,500 | £2,350 | £950 |
Converted Flat | £2,750 | £1,950 | £800 |
Purpose-built Flat | £2,400 | £1,750 | £650 |
What if I am not on the grid?
If you’re not on the grid, you will receive the equivalent benefits of the Energy Bills Support Scheme and Energy Price Guarantee combined.
If you are set up on someone’s land, then the land owner will receive support through the Energy Bill Relief Scheme.
Legislation is being worked on (as of September 2022) so that those living off the grid on someone else’s land would have this benefit passed on.
The Energy Bills Support Scheme will also apply although the exact details of how you’ll receive this £400 reduction are yet to be defined.
Therefore, we recommend keeping an eye on the government’s ‘Energy bills support factsheet’ for updates.
If you have any doubts, we recommend contacting your local council.
Electricity users who do not use gas for heating
If you use heating oil or another non-gas alternative to heat your home, this section is for you.
The good news is that in this case, you’d still receive support via the Energy Bills Support Scheme and EPG to help with your electricity costs.
Of course, it would simply mean you wouldn’t get support for gas heating.
The good news, however, is that if you cannot receive support for the cost of heating via the EPG (for instance, you live in a location without access to the gas grid), you will receive an extra £100 payment to deal with the rising costs of non-gas fuels like oil.
What if my energy costs are part of my rent?
Landlords, like any homeowner, will benefit from the EPG.
This, of course, assumes that they have a gas contract with a licensed gas supplier or/and a domestic electricity contract with a licensed electricity provider.
The EPG reduction and the reduction brought about via the Energy Bills Support Scheme should be passed on to you in the form of reduced rent.
The exact way this would work would depend on how they charge you.
For instance, if you pay based on energy usage, they must adjust the price they charge you based on how the EPG and Energy Bills Support Scheme has lowered the energy rate they must pay to their energy supplier(s).
Legislation is being introduced currently to make sure that landlords pass on the energy reduction costs where energy bills are part of a tenant’s rent.
Moreover, if your landlord is on a non-domestic contract, they will see energy bill reductions through the Energy Bill Relief Scheme. And, again, in this case, they should also pass on the savings to you.
