£2,500 Energy Price Guarantee explained

Which? breaks down how the new scheme will affect your energy payments and what your new electricity and gas rates will be.


New Prime Minister Liz Truss has announced a new set of measures to tackle crippling energy bills ahead of the winter and beyond. The measures come two weeks after Ofgem’s price cap soared to £3,549 a year.


The new Energy Price Guarantee will fix unit rates for domestic customers and will be in place for two years. Energy prices for suppliers will still continue to change, but the government will be paying the excess instead of customers.


The support is designed to extend to households in all circumstances, including those who will not receive the previously announced £400 discount on electricity bills.


The reductions will come on unit rates rather than standing charges, which will stay as set by Ofgem for October 2022. That means that for energy customers paying for variable tariffs by direct debit in England, Scotland and Wales, unit rates and standing charges will work out at around:

  • Electricity: 34p per kWh with a standing charge of 46p per day

  • Gas: 10.3p per kWh with a standing charge of 28p per day

Rates will be slightly different based on where you are and the sort of tariff you pay for. The support package will be applied to your energy bills automatically and you do not have to do anything in order for this to happen.


The best thing to do right now, no matter what type of tariff you are on, is wait for your energy provider to contact you explaining exactly what you will be paying come October.


Use Which? energy bill calculator: find out what your bills might be


You can find the energy calculator on:

https://www.which.co.uk/news/article/liz-trusss-energy-guarantee-puts-price-cap-at-2500-for-a-typical-household-for-two-years-calculate-your-new-bills-aitQB9G0bkD5


If you're currently on a variable tariff and pay by direct debit, our calculator will show how much your bills could be over the next two years, including the £400 discount applied from October 2022 to March 2023.


Please note that this is simply an estimate based on the percentage change from the current price cap (the rates set in April 2022) to the new annual bill estimate for a typical household once the government's price freeze is applied, including the £400 discount for the first six months. Your own payments will vary based on how much of each type of fuel you use.


What will the new electricity and gas unit rates actually be from October 2022?

The new unit rates (for direct debit customers) will be an average of:

  • 34p per kWh for electricity with an average standing charge of 46p per day;

  • 10.3p per kWh for gas with an average standing charge of 28p per day.

These will be crucial for determining how much you personally might pay overall.

Multiply your annual usage in kWh for each fuel (this should be on your energy bills, or you can estimate it yourself) by each of the rates above respectively to find out what you're likely to pay over the year. Don't forget to divide by 100 to get a price in pounds rather than pence. You'll also need to add £270 per year, which is what the average standing charges add up to if you pay for both fuels.


Your direct debit payments, if they are monthly, should be roughly this total figure divided by 12.


We've run the new electricity price through our lab energy use data to be able to show you how much it will cost to run appliances come October based on the new unit rate: get our new appliance running cost update.


What does the new energy price guarantee (EPG) mean for you?

Your energy company will need to figure out what your bills will be following this announcement, so you'll need to wait for it to let you know exactly how the EPG will affect your specific prices. However, all households will see their energy payments be lower for the next two years than they would otherwise have been.

You do not need to do anything to apply for the EPG as it will be given to you automatically.


For those in England, Scotland and Wales:

  • If you currently have a variable tariff, you can expect your bills to increase by around 27% in October. That's because while the EPG is lower than what was previously planned for October, it's still higher than bills are right now. You do not need to take any action to benefit from the scheme.

  • If you’re on a fixed tariff that is at a higher rate caused by recent energy prices, the government has said that your unit prices will be reduced by 17p/kWh for electricity and 4.2p/kWh for gas. Energy suppliers will adjust fixed tariffs automatically, so you do not need to take any action to get the benefits of this scheme. We recommend that you wait to hear what your new prices will be before deciding whether or not you want to switch back to your supplier's variable tariff.

  • If you pay by direct debit: Your energy company will get in touch to explain what your new monthly payments will be. Bear in mind that these may still be slightly higher from October onwards as the new EPG prices are still higher than current rates.

  • If you pay by prepayment the EPG will be applied to the rate you pay for each unit of energy, so the money you put on the meter will last longer than would otherwise have been the case this winter - you don't need to take any action to benefit from the scheme. Don't forget you will need to redeem your vouchers for the monthly discounts of £67 when they arrive.

  • All households on the electricity grid will still receive a £67 discount on their October bill - the first instalment of the total £400 payment over the next six months. Most people will see this automatically credited to your energy account. If you pay by traditional prepayment, you'll be sent vouchers to redeem wherever you top up. Please note you will not be asked for any personal or bank details for this.

  • If you recieve benefits and were expecting further support as part of the scheme announced earlier in the year, this will still be paid to you as planned.

  • If you are outside the initial support scheme, for example you use off-grid energy or a communal energy supply, a discretionary fund will be made available to give you equivalent support.

If you are in Northern Ireland, the government has said that it is working with Northern Ireland partners, including the NI Utility Regulator and NI energy suppliers, to ensure that an equitable level of support to that detailed above can be delivered to consumers and businesses in Northern Ireland.


More on today's energy cap change to £2,500

Following today's announcement, the energy price freeze will be set at £2,500 for a typical household from 1 October for two years, meaning that a typical household using a 'medium' amount of energy will save around £1,000 from Ofgem’s previously announced price cap of £3,549. It's still an increase of around 27% from the current price cap of £1,971.


This will be achieved by an Energy Price Guarantee (EPG):

  • A 'typical' household (which according to Ofgem uses 2,900 kWh of electricity and 12,000 kWh of gas in a year) will see an annual bill reduction of at least £1,000 based on current pricing.

  • This includes a temporary suspension for energy customers of green levies, which for a typical bill make up around £150 a year. These costs will be paid by the Exchequer, so low-carbon electricity generation investment will still continue.

  • Households will still recieve the £400 Energy Bills Support Scheme, paid in 6 monthly instalments from October. Find out how these will be paid to you.

  • The most vulnerable UK households will also continue to receive £1,200 of support provided in instalments over the year.

  • An additional discretionary fund of equivalent support will be available for those households who are outside of the schemes. For example, households not on standard energy contracts or who use heating oil, communal heating schemes or live in mobile home parks.

  • Those who have fixed a tariff at higher rates in anticipation of future price increases will have their unit rates reduced by 17p/kWh for electricity and 4.2p/kWh for gas. If you feel this is not sufficient, you may still be able to come out of your fixed tariff onto your supplier's SVT. We suggest you wait to hear what your new rates will be before making this decision.

Although this still means that energy bills will increase compared with last year, Truss has stated that the support package will prevent further rises in the next two years and the £400 government support payment will still go ahead in October. Truss also noted that the energy cap reduction will work to reduce inflation by 5%.


Ofgem has said that it will continue to release three-monthly price caps. These will still determine the amount the energy providers can charge for a unit of energy in these time periods. Because the government will be paying for any excess in your bills, these caps will still be important in determining how much the scheme will cost the government - and ultimately taxpayers - in the years to come.


Octopus Energy’s chief executive and founder Greg Jackson has said that customers can expect to hear from their energy supplier about cost changes before 1 October.


Will there be energy support for businesses?

Businesses, and other non-domestic energy users such as charities and public sector organisations like schools, will also benefit from reduced energy costs, with costs for those on variable tariffs capped at the same price per unit - or kilowatt hour (kWh) - as households. That's an average 34p per kWh for electricity and 10.3p per kWh for gas. Unlike households, this will only be in place for six months.


The government will assess whether certain industries, such as hospitality, should be offered more support - Truss promised that this decision will be confirmed within three months.


What is the long-term plan?

Truss made clear in her speech that there will be a review of energy regulation to create a more affordable system in the long term.


She also talked about initiating an Energy Supply Taskforce that will work with energy suppliers as well as producers of renewable energy to negotiate contracts that reduce energy prices in the long term.


The new government wants to grow supplies of various types of energy. To that end, it has lifted the ban on fracking, which extracts oil and gas from deep in the earth. The practice was previously banned due to potentially polluting ground and surface water and threatening wildlife.


Truss wants the UK to be a net energy exporter by 2040, through a range of domestic energy production including fracking, nuclear and renewable energy generation. She also announced a review into how the country delivers net zero carbon emissions by 2050.


Opposition party criticism

Labour leader Keir Starmer said that he was pleased with the price cap reduction and pointed out that a prize freeze of some sort was a Labour idea and should have been implemented earlier by the government.


However, he questioned Prime Minister Truss over who would end up paying for the support and mentioned his previous suggestion of a windfall tax on energy giants, pointing out that customers’ energy bills are funding large profits among energy companies.


He warned that if a windfall tax wasn't applied, working people will be the ones who pay the price for the energy support package. The Prime Minister has ruled out windfall taxes.


The government must commit to reforms and turbocharge energy efficiency

Rocio Concha, Which? director of policy and advocacy, said: 'This is a bold intervention that will provide huge relief for many and prevent millions of households being left in the cold. However, even with this help, it's likely that some consumers will still struggle to afford higher energy bills this winter, and the government may need to provide additional support for those on low incomes.


'As part of its plans to shake up the energy market, the government must commit to reform retail energy pricing so it works for the long term. These reforms should include protecting those on low incomes as well as reviewing how standing charges and tariffs for prepayment customers could be made fairer.


'The government must also go all out to turbocharge the adoption of energy efficiency measures, such as home insulation, and make sure that a temporary suspension of green levies does not delay the UK's transition away from fossil fuels.'

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