Tomorrow (1 October), the government’s Energy Price Guarantee support scheme will come into force, helping mitigate the impact of the energy crisis for millions of domestic customers up and down the country.
After months of calls for support, then newly appointed Prime Minister Liz Truss announced that the typical house would see their bills set at £2,500 in a speech to the House of Commons on 8 September.
The Energy Price Guarantee scheme works by capping the unit price of electricity and gas. For those on a standard variable tariff, direct debit bills will be limited to 34.0p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, from 1 October.
Those on fixed tariffs at a higher rate than the new price freeze due to the recent energy price rises, will see their unit prices reduced by 17p/kWh for electricity and 4.2p/kWh for gas from 1 October.
The typical home is one with three bedrooms and two to three people that uses 2,900kWh of electricity and 12,000kWh of gas. At these new unit prices – and taking into account 46p per day for electricity and 28p per day for gas for a typical dual fuel customer – this leads to a typical bill of £2,500 for the year.
While the energy sector broadly welcomed the support measures, energy suppliers were left with less than a month to implement the new prices. This was potentially hampered additionally by a gap in the information announced.
While initially announced on 8 September, further details of the scheme and other government support measures have been published bit by bit over the last month.
“Energy UK has been calling for intervention to match the scale of this crisis so we very much welcome the Prime Minister’s announcement and immediate focus on energy,” said Energy UK’s director of advocacy, Dhara Vyas at the time.
“Our members will now be working closely with government on the details of the scheme in order to implement the new price cap level as quickly as possible and communicate it to their customers. Wholesale gas prices are likely to remain high for some time so we need to be prepared for this support to be in place over the next year, and there needs to be a clear exit strategy from government.”
So how much of a challenge has the implementation of the Energy Price Guarantee been?
A short timeframe for a significant intervention
According to Ofgem, there are around 28 million electricity and 23 million gas meter points. From tomorrow, suppliers will have to be charging virtually all of these at the government’s capped unit rates.
Speaking to Current± about the Price Guarantee, Kit Dixon, senior policy and regulation manager at Good Energy, highlighted the difference in the time available to roll out this scheme in comparison with others.
“If you consider all the work that’s gone on behind the scenes to implement the Energy Bill Support Scheme, the first incarnation of which was announced in February, delivering this more complex government discount in less than a month was always going to have an impact. It will be a big challenge but we have pulled together an excellent project team to ensure that it gets done.”
The Energy Bill Support Scheme is a £400 discount domestic customers are set to receive over six months from tomorrow as well.
First announced initially as a £200 repayable loan, the support was doubled and the requirement to repay it scrapped in May when the then-Chancellor Rishi Sunak announced a 25% windfall tax on oil and gas majors. As such, suppliers had the best part of five months to roll out the support scheme.
While rolling out the Energy Price Guarantee is complex, Good Energy is confident in its ability to apply the schemes to customers thanks to its use of Kraken, continued Dixon.
“We needed an intervention of this scale, and were frustrated with the amount of time government was taking to announce anything. But now we are where we are, so whilst time is extremely tight we will work tirelessly to deliver the discount for our customers,” he said.
Does it go far enough?
The support is certainly welcome, and the blanket nature of the scheme arguably easier to implement given the short timeframe in which it needed to be implemented. But does it go far enough to help the vulnerable?
Capping the unit price so that the typical household will pay £2,500, along with the £400 discount and additional measures gives a sense of certainty to households, which is key as they work to manage other elements of the cost of living crisis.
“Prime Minister Liz Truss and her new Chancellor Kwasi Kwarteng have taken quick and decisive action in their new roles devising a plan in step with the emergency faced,” said Keith Anderson, ScottishPower chief executive.
“The Energy Price Guarantee is clear, simple for people to understand and, importantly, can quickly be put in place for October which keeps prices down ahead of winter.
“It also means there’s no one falling between the gaps or caught in a loophole of eligibility.”
But £2,500 for a typical household is still almost double what the Default Tariff Price Cap was for the winter 2021/22 period. This was set at £1,277 from October 2021, a 50% increase from the summer cap.
As such, many across the country will still struggle to pay their bills. Suppliers are urging customers to reach out to access additional support measures.
“We always encourage customers to speak to us so we can help where we can — monthly payment plans, smart pre-payment where that is appropriate,” said Dixon.
“We can also signpost them to organisations who can offer free and independent advice, and check they are receiving any benefits to which they’re entitled. This winter we will be administering the Warm Home Discount for the first time. Our SVT has no exit fees and we can help customers to switch to alternative suppliers if they wish.”
Many suppliers have rolled out additional support systems for vulnerable customers, for example Octopus Energy has increased its Octo Assist Fund to £15 million whilst British Gas Energy announced it will donate 10% of all its profits to its Energy Support Fund to provide grants to customers for the duration of the energy crisis.
An E.ON spokesperson told Current±: “We know these are incredibly difficult times for our customers and we’d urge anyone who is struggling to get in touch as there are ways we can help, including cold weather payments and targeted support such as through our E.ON Next Energy Fund.”
Going forward, consumers and suppliers could both be helped by the government providing a sense of certainty.
“Customers and suppliers need certainty so they can plan ahead and know what to expect. Confusion and doubt only makes a bad situation worse,” finished Dixon.
“Future measures need to be carefully considered well in advance of any announcement, and energy suppliers need to be closely involved in those deliberations. This needs to include all energy suppliers, not just the largest companies, so that we can work together to find a solution which works for everyone.”