What Is the Energy Price Guarantee and How Does It Affect Me?

Liz Truss has announced the implementation of the Energy Price Guarantee (EPG), which will replace the energy price cap for the next two years. What does this mean for you? It is designed to curb exorbitant prices through gas and electricity as well as bring inflation down. As the public have been worried about affording to heat their homes this winter, the new Prime Minister has had to hit the ground running to put people’s minds at ease.

While a cap at £2,500 has been thrown around, what does this mean? Unfortunately, for those thinking to consume as much energy as possible in the hopes of only paying £2,500 a year in bills, that isn’t how it works. The EPG is a reduction on the units of gas and electricity, so if you use more, you’ll pay more and if you use less, you’ll pay less.

The figure quoted is just an example of a typical household. There’s no total cap on what you pay. According to Ofgem, a typical household uses around 1,200kWh of electricity and 12,000kWh of gas a year. This is where the £2,500 comes from, which is much lower than worst case scenarios of over £6,000 we saw last month.

So the average household will see an annual bill reduction of at least £1,000, based on current pricing. While it’s still an increase of 27% from the current price cap of £1,971, it is much lower than previous estimates. If you factor in the £400 energy bills support scheme, the average will be around £2,100 a year.

The EPG applies to all households, which is relief to those not covered by the £400 rebate. It’s a reduction on unit rates, not standing charges. You also don’t need to apply for it, as you’ll benefit automatically. You should hear from your energy supplier before 1st October as to how it will affect you.

All households on the electricity grid will receive a £67 discount, which is the first instalment of the £400 payment. Most households will receive this automatically, but prepayment meter users will be sent vouchers instead.

For those on direct debits and fixed tariffs, you can expect to see a reduction in rates. Electricity will be 34p/kWh with a standing charge of 46p/day and gas will be 10.3p/kWh with a standing charge of 28p/day.

Variable tariff prices will increase by around 27% in October as the EPG is still higher than current bills.

Those on prepayment meters should see their energy last longer than it otherwise would have. The monthly discounts of £67 will need to be redeemed when they are delivered.

Customers off-grid or on a communal energy supply, LPG or oil will have access to a discretionary fund to give an equivalent level of support. Details of this haven’t yet been announced.

There has been a temporary suspension of green levies on household bills in order to add further help. This takes off £150. While green levies accounted for up to 25% of electricity bills in 2020, this figure is now down to about 8% in 2022. Green levies have previously helped government-backed schemes for energy-efficiency and insulation. While the cost for now has been removed, this will no doubt come back at a later date as the taxpayer will need to pay for the £150 billion package.

The most vulnerable households identified by the government will still receive £1,200 support over the year. The EPG is not meant to replace any existing support on offer in the wake of the cost of living crisis.

All in all, the government is expecting these measures to reduce inflation by at least 5%, which will help reduce prices significantly. Ofgem will still keep changing the price cap, but this affects what energy companies will pay, how much the EPG will cost the government and, in turn, how much it will cost taxpayers to repay in future.