The Energy Price Guarantee Explained
Over recent months we have seen many headlines and announcements regarding rising energy bills in October 2022. Increased gas and electricity costs were expected to see the energy price cap hit £3,549 this year before increasing again in 2023.
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What is the Energy Price Guarantee?
As a result of these rising prices, the government have announced an Energy Price Guarantee which will see energy bills frozen at £2,500 (based on typical UK usage) from 1st October 2022 until 2024. This winter’s £400 energy grant will bring down a typical usage bill to a maximum of £2,100.
For homes relying on heating oil, there will be a fund set up by the government which matches the support package offered by the energy price guarantee.
What is the Energy Price Cap?
The energy price cap is a limit on how much your supplier can charge you for the gas and electricity you use on a default energy contract.
Although the price cap is often advertised as a maximum annual bill, it actually limits your unit rate (cost of the energy you use) and standing charge (a daily fee paid to your supplier). This means you could be charged more than the advertised annual price cap if you use more energy than the average UK household.
The price cap is reviewed twice a year in April and October. Due to the increasing energy costs, the price cap has risen dramatically in recent reviews. This has led to the government announcing the energy price guarantee to avoid unmanageable energy bills.
The Energy Price Guarantee vs the Projected Energy Price Cap
Here, you can view the energy price guarantee against the current price cap and the projected increases in October 2022 and January 2023.
New Energy Price Guarantee
Current Price Cap
October 2022 Projected Price Cap
January 2023 Projected Price Cap
With the price cap projected to hit £5,400 in January 2023, the new energy price guarantee will be welcomed by many households. Like the price cap, the energy price guarantee limits your unit rates and standing charges. So, if you’re energy usage is higher than the average UK household, you could be charged more than £2,500 annually.
To supplement the price guarantee, UK households will receive a £400 energy grant paid at £66 per month across this winter. However, we don’t yet know whether this will be in place for the winter of 2023.
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Is Everyone Protected by the Energy Price Guarantee?
Energy prices will be capped for everyone across England, Scotland, and Wales for the next 2 years. This means that all households in the UK will be covered along with the £400 grant.
A further one-off payment of £650 will be available to lower-income households receiving tax credits as well as further payments for pensioner households and disabled people.
Are Fixed Rate Tariffs covered by the Energy Price Guarantee?
The energy price guarantee is expected to apply to fixed rate tariffs as well as standard variable tariffs. So, those who have fixed their energy prices expecting price increases will still be protected by the new price freeze.
Many people who fixed their energy price recently will have quoted rates well above the new energy price guarantee. This has led to reports of people cancelling their fixed rate deals after the announcements.
There have been suggestions that the government will request that suppliers waive exit fees, but this has not been confirmed as of yet. Before cancelling it’s important to remember that some tariffs may have expensive early exit fees.
You should never cancel your energy deal without first checking if you will be charged an exit fee. These are charged at the discretion of your supplier and should be listed in your energy contract.
Are Businesses Covered by the Energy Price Guarantee?
Although the price cap did not previously affect businesses, they will now be protected by a new six-month scheme.
The energy price guarantee will apply to businesses and other non-domestic energy users such as charities and schools for the next six months. Currently, it isn’t known what support will be provided to businesses after the six-month period.
A review is set to take place in 3-months to consider how support can be provided for vulnerable industries in the future.