Many of the UK's four million households which prepay for their energy will see prices drop on 1 April when a new price cap comes into force, but savings will vary hugely and at least 200,000 customers will see an increase, new figures obtained by MoneySavingExpert.com reveal.
The price cap is designed to benefit those who prepay for their energy – ie, top up by key or card – because they are among those least able to benefit from competition by switching to cheaper tariffs.
Regulator Ofgem announced in August last year that it would be bringing in the cap following a two-year investigation into the energy market by the Competition and Markets Authority. The cap is due to last until the end of 2020, by which point the roll-out of smart meters is expected to have given prepay customers access to better deals.
Until now most of the big energy firms have been tight-lipped about how the introduction of the cap will affect customers, but with less than a month to go some have released figures showing how prices are likely to change.
It's important to note that the price cap isn't set at one level – it will vary for electricity and gas, by meter type and by region – so its impact on customers will differ.
- E.on told us that from Saturday 1 April about 75% of its 500,000 prepay customers will see prices drop, with typical savings of about £64/year – but "due to a rise in non-energy costs, which impact electricity bills, some customers will see a small increase".
- Npower – which has 300,000 prepay customers – told us that from 1 April, for a typical customer, average electricity prices will drop by 3% (£16/year on typical usage), gas prices by 15% (£88/year) and dual fuel prices by 9% (£105/year). However, it said about 50,000 of its "very low" electricity users would see prices rise by an average of £22/year – those who do and also get the Warm Home Discount will receive vouchers to offset the increase (see more below).
- EDF, which has 700,000 prepay customers, says those on a standard variable tariff will see an average drop from 1 April, but it isn't yet able to say by how much. But a spokesperson said "no prepay customer will see an increase".
- SSE announced last week that all its prepay gas customers will see an average 13% drop in gas prices, while around half of prepay electricity customers will see prices reduce by 2% from 1 April, with the other half seeing an average 3% increase. Yet while overall more than 75% of its customers will save, up to 150,000 will see prices rise by an average of £16/year.
British Gas gave no detail on its changes other than saying its gas unit rates will be reduced in accordance with the cap. Scottish Power has yet to respond to our questions.
The price changes will largely apply to those on standard tariffs. If you took out a fixed tariff after 24 June 2016 it will be subject to the cap and so could be reduced, though Ofgem says it expects this to only apply to a small number of customers in practice.
If you're a prepay customer on a big six firm's standard tariff it's likely you can save even before the prepay cap comes in. Use our free Cheap Energy Club to see if you can save by switching, or see our Cheap Prepaid Gas & Elec guide for how you could save £100s by moving to a credit meter.
Npower told us that while 50,000 of its electricity users are likely to see prices rise, those who also receive the Warm Home Discount will be issued vouchers to offset the increase. These will be equivalent to three months' energy usage, based on typical consumption.
A spokesperson said: "Customers will receive a letter from us explaining the change in rate, shortly followed by a letter from the Post Office with details of how to redeem their voucher."
How is Ofgem's prepay price cap set?
To calculate the cap, Ofgem has taken into account the Competition and Markets Authority's initial recommendations, as well as wholesale prices (what energy providers pay for gas and electricity), forecasts of environmental levies, inflation and energy networks' charges. The cap also includes a degree of "headroom", to ensure suppliers are able to price below the cap.
What does Ofgem say?
A spokesperson for Ofgem said: "Our rules are clear. We have set a price cap for prepayment consumers, and suppliers are not allowed to charge above this level. Other than that, suppliers are free to choose their prices.
"We will be carefully monitoring the market to ensure that as of April, prepayment prices are in line with the new rules.
"The impact that the cap will have on prepayment prices will vary depending on what tariff consumers are currently on, and how much energy they use. However, most customers will see significant reductions to their bills as a result of the cap, with a typical gas or Economy 7 customer saving around £80 a year.
"Since the beginning of February, some suppliers with prepayment electricity tariffs that are already beneath the level of the cap have announced price increases, citing rising cost pressures (with similar announcements made for customers using direct debit and other payment methods). However, the cap protects consumers from increases above the level set by the cap."