Energy Price Guarantee 2022: date new energy price cap starts, how it works - how much will households save?

Prime Minister Liz Truss has confirmed that households on the Ofgem energy price cap will have their bills frozen from October.

It means that a planned October price cap rise which was expected to see average annual energy bills hit £3,549 has been avoided.

The Ofgem price cap applies to households on variable rate energy deals, which is around 80% of the country, or 24 million people.

The plan will see the government limit the price energy suppliers can charge customers for units of gas, replacing the existing price cap set by regulator Ofgem. Ministers will provide energy suppliers with the difference between the new, lower price and what they would charge were this not in place.

Schemes previously funded by green levies will also continue to be funded by the government during this two year period to ensure the UK’s investment in home-grown, secure renewable technologies continues.

The Prime Minister told MPs: “This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options.”

Here’s what you need to know about the new government plan, when the Energy Price Guarantee will take effect, and how households will benefit.

What is the Energy Price Guarantee and when does it start?

Under new plans, a typical UK household will pay no more than £2,500 per year on their energy bill for the next two years, from 1 October, through a new Energy Price Guarantee.

It will limit the price that suppliers can charge customers for units of gas and will take account of temporarily removing green levies, worth around £150, from household bills.

The guarantee will supersede the existing energy price cap and will save the average household £1,000 per year based on current energy prices from October.

For businesses and other non-domestic users, such as schools and hospitals, which have not been covered by the existing price cap, a six-month scheme will offer equivalent support. After that there will be ongoing support for the most vulnerable industries, with a review in three months’ time to decide where the help should be targeted.

It comes in addition to the announced £400 energy bills discount for all households, which will be paid in six instalments from October, and together they will bring costs close to where the energy price cap currently stands today.

The most vulnerable UK households will also continue to receive £1,200 of support provided in instalments over the year. An additional discretionary fund will be available for those households who are outside of these schemes, such as those not on standard gas / electricity contracts.

Who will benefit from the guarantee?

The new guarantee will apply to households in Great Britain, with the same level of support made available to households in Northern Ireland.

Households who do not pay directly for mains gas and electricity, such as those living in park homes or on heat networks, will be no worse off and receive support through a new fund, the government has said.

How much will households save?

The consumer saving will be based on usage but a typical household will save at least £1,000 a year, and the average flat will save £700, based on current prices from October.

The guarantee limits the amount you can be charged per unit of gas or electricity, meaning the exact amount of your bill will continue to be influenced by how much energy you use.

Energy suppliers will be fully compensated for the cost of the Energy Price Guarantee and £150 of this £1,000 a year saving will be delivered by temporarily suspending green levies. These costs will be transferred to the Exchequer so that customers do not bear the costs, but benefit from the low-carbon electricity generation.

Do I need to apply for the guarantee?

Households do not need to apply for the Energy Price Guarantee and do not need to contact their energy supplier.

Consumers in England, Scotland and Wales who pay for their energy through a monthly, quarterly or other regular bill, will see the Energy Price Guarantee applied when bills are calculated.

Due to the different energy system in Northern Ireland, the government is working with partners, including the NI Utility Regulator and NI energy suppliers, to ensure that an equitable level of support can be delivered to consumers and businesses in Northern Ireland.

How the Energy Price Guarantee will be applied

If you are on a pre-payment meter

Households on a pre-payment meter will see the Energy Price Guarantee applied to the rate you pay for each unit of energy. This means the money you put on the meter will last longer than would otherwise have been the case this winter.

If you are on a fixed tariff

If you are on a fixed tariff, energy suppliers will adjust fixed tariffs automatically and you do not need to take any action to get benefits from the scheme.

If you are not connected to the grid

Households not on standard gas or electricity contracts, such as those living in park homes or on heat networks – and so outside the scheme – will be no worse off and will receive comparable support through a discretionary fund.

If you pay for electricity as part of your rent

The Energy Price Guarantee is applied per unit of gas or electricity used for households with a domestic electricity connection, so 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, meaning they must comply with the maximum resale price rules which say they must not make a profit. The maximum resale price for electricity is currently set at the same price as that paid by the person reselling it.

Your landlord may charge an ‘all inclusive’ rent, where a fixed cost for energy usage is included in your rental charges. In this case they are encouraged to come to an agreement with you on the Energy Price Guarantee in line with the arrangement in your tenancy agreement.