Energy costs for homeowners and tenants
What the Government's energy price guarantee means and some tips to try and save energy
Household energy costs have been rising significantly over the past year, with many headlines proclaiming that people were likely to be paying as much as 80% more for household energy costs this autumn. The Government has now taken action with its Energy Price Guarantee and some key highlights of their plan can be found in this article.
In recent years many households were able to take advantage of the cheapest rates on the market for their gas and electricity by switching provider and fixing their tariff, often with the assistance of websites such as Money Saving Expert. Other households were often paying more for their energy as a result of staying with the same provider, often on a less favourable tariff. This was why the price cap was originally introduced, to act as a safety net for customers and ensure that they still got a fair price.
The price cap is a limit on the price per kilowatt hour, not a limit on the total price you pay. The figure of £2,500 is an illustration of what the average household will pay based on their usage. If you use less energy than the average, you should pay less; if your usage is above average, you’ll pay more. There are also usually standing charges which are payable regardless of your energy usage.
However in the past year or so, the costs of energy have gone up dramatically, several energy providers have gone out of business, and there are no “cheap” fixes any more. Instead, for the past year or so, most households have been on their supplier’s default tariff (as their fixes have come to an end, or they’ve been moved to a new provider) and so have been “on the price cap”.
The price cap was originally to be reviewed twice a year, in other words the cost is set based largely on the costs of wholesale energy in the preceding months. However this was then changed so that the price cap is now reviewed four times a year. In October 2022 the price cap was set to increase by 80%, hence the Government intervention.
The Energy Price Guarantee
The bill announced by the Prime Minister is intended to cap and control the rate of increase, in the face of shortages and supply risks related to the war in Ukraine and the global energy supply chain. The proposed plan addresses the rates that energy providers can charge but, as mentioned above, this does not set a maximum amount that households will pay – rather a maximum amount per unit of electricity and gas.
- A typical household’s energy bill will rise to £2,500 a year from 1 October (from £1,971) vs a previously projected £3,549 a year
- The “energy price guarantee” will last for two years to lessen that cost
- The government mandated rate is fixed, but homeowner and renter bills will continue to be based on actual usage – there is no ‘cap’ on total billable amounts
- The plan applies to all households in England, Scotland and Wales, with a comparable plan being developed for Northern Ireland
- Proposed one-off £400 fuel bill discount payments for households will go ahead in addition to the ongoing reduced rates
- The rates apply to most energy sources for heating and electricity, including heating oil
- There is no application process and individuals do not need to contact their energy providers
- The government plans to offset energy providers’ costs
Rules for Renters
- The Energy Price Guarantee is applied per unit of gas or electricity used for any household with a domestic electricity connection
- The cap will be applied if your landlord has a domestic electricity contract with a licensed electricity supplier
- Your landlord may be reselling the electricity to you based on your usage, in which case:
- They must comply with the maximum resale price rules – no profiteering on price
- The maximum resale price for electricity is currently set at the same price as the price paid to acquire it
In all cases, the Energy Price Guarantee will replace the existing energy cap, which sets the highest amount suppliers are allowed to charge per energy unit. These energy units are displayed as kilowatt hours (kWh) on utility bills.
The estimated ‘typical’ household bill of £2,500 a year assumes 12,000 kWh of gas used per year, and 2,900 kWh of electricity per year. Note that there really is no ‘typical’ user or rate of use. The actual bill will reflect size of home, number of energy users in the property, rates of use and so on. Big energy users can expect to pay more than £2,500, and people who use less energy will pay less.
What steps can homeowners and tenants take to try and reduce their energy usage and therefore bills
The following information has been widely disseminated in the media and should be taken as a guide for the average household. We appreciate that not everyone is in a position to reduce their energy usage.
- Turn your heating thermostat down to 18 degrees – this is the temperature that the World Health Organisation says is sufficient for the average healthy adult. Consider wearing extra layers, using a blanket or slippers if possible.
- Draught-proof windows and doors where possible. This is more of a problem in older houses, but the more you can do to prevent heat loss, the better.
- Turn the light off when you leave the room.
- Take shorter showers – indeed consider having a shower instead of a bath if you can – this also can save a lot of water.
- Wash clothes on a cooler setting if possible.
- A good rule of thumb with regard to electrical applicances, is that the biggest users of electricity are those appliances that have to heat up. This includes electric ovens, electric hobs, microwaves, kettles, toasters, dishwashers, vacuum cleaners, and especially tumble dryers. Try to be more efficient with your usage of these appliances.
- Switch applicances off fully, don’t leave them on standby. This is less of a problem with modern TVs, consoles and chargers, but it’s better to turn it off at the wall if you’re not using it.
It is a good idea to regularly keep track of your energy costs, and provide regular meter readings to your supplier if you do not have a smart meter. See if you can alter your direct debit if you feel it is too high in relation to your usage. Some energy suppliers have apps that make it easier to do this.
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