Energy Price Guarantee: what it means for your energy bills

What is the Energy Price Guarantee, how does it work, what does it mean for your energy bills and how is it being paid for? We explain it all

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(Image credit: Getty images)

The Energy Price Guarantee (EPG) has frozen the unit price of energy until April 2023, before rising to cost the average household around £3,000 until April 2024.

It means from April 2023 energy bills will be going up by around a third as households also lose the £400 energy discount.

Crucially, the EPG does not set a total limit on how much your bills can cost. It only limits the unit cost of energy, setting a maximum price per kilowatt hour (kWH) energy firms can charge you for the gas and electricity you use, plus standing charges. 

The more energy you use, the higher your bills will still be.

As a result of the limit on unit prices and standing charges a typical household will face:

  • Energy bills of around £2,500 per year until April 2023
  • From April 2023 to April 2024, a typical household will pay around £3,000 per year

That’s an increase of £500 per household, per year on energy bills from April 2023.

With the EPG, households are currently getting the £400 energy grant paid to them in four instalments until March 2023, as extra help on energy bills. 

Bill payers will feel the sting of this discount ending in March 2023, with the new higher limit coming into effect the following month (April 2023), without an extra discount.

The Chancellor Jeremy Hunt said: "From April, we will continue the Energy Price Guarantee for a further 12 months at a higher level of £3,000 per year for the average household.

With prices forecast to remain elevated through next year, this will still mean an average of £500 support for every household."

Analysts Cornwall insights predicted (opens in new tab) the average consumer would have to pay £3,702 from April, without this intervention. 

The EPG is intended to help families tackle the cost of living crisis, which is primarily being driven by rising energy, food and fuel prices.

Here we explain what the EPG means for your bills, how it could be paid for and the support available to you.

What does the Energy Price Guarantee mean for your energy bills?

The EPG limits the unit cost of energy, in the same way pre-existing Ofgem energy price cap does. It is the maximum price per kilowatt hour (kWH) energy firms can charge you for the gas and electricity you use, plus standing charges.

It means there isn’t a total limit on how much your bills can cost - the more energy you use, the higher your bills will be. 

The cost of £2,500 per year for the average household bill has been much publicised, but the £400 energy bill discount and the temporary removal of green levies need to be factored in. 

It means the average household bill will remain roughly the current level of £1,971 for at least the next year - if you factor in the £400 energy discount.

But, from April 2023 with the £3,000 EPG in place for a year, there will be no energy grants like the £400 discount, so a typical household will be paying £900 more from April 2023.

The average household should expect its energy bill to cost around £208 per month until April 2023. But this could be substantially higher or lower depending on your energy use. 

The energy bill discount will reduce your bill each month from October 2022 - March 2023 (£66 in October and November and £67 December 2022 - March 2023).

You can use our energy bill calculator to get personalised view of how much you can expect to pay.

The typical household on a standard variable rate tariff will still be paying a lot more for energy this winter.

Swipe to scroll horizontally
Header Cell - Column 0 Last winterThis winter
Electricity unit price £0.20 per kWh. £0.34 per kWh.
Electricity daily standing charge£0.25£0.46
Gas unit price £0.04p per kWh. £0.10 per kWh.
Gas daily standing charge£0.26£0.28

It’s important to note these are averages. Standing charges vary from region to region. Some parts of the UK  - usually remote regions -  have seen big jumps in standing charges in recent years as the cost of supplying energy has risen.

We’re waiting for unit prices to be published for prepayment meter customers. Around 4 million households use a prepayment meter for their energy bills, according to Ofgem.

It is expected the unit cost for prepayment meter customers will continue to be slightly higher than direct debit bill payers.

We are still waiting on details for those not on standard gas or electricity contracts, such as those in park homes or heat networks. 

They will not benefit from the Energy Price Guarantee, but the government said they will get ‘comparable’ support. We will keep you posted as soon as we know more.

Households still reveive the £400 payment for energy bills

The £400 payment will be made from October 2022 and will be spread over six months instead of one lump sum payment. 

If you're eligible your household will get a discount of £66 applied to your energy bills in October and November, and then £67 a month from December to March 2023.

You do not have to pay back the £400 - as former chancellor Rishi Sunak put it, “not a penny to repay."

The government has also said it will introduce legislation to make sure landlords pass the £400 energy discount on to tenants who pay all-inclusive bills.

But the government has let energy suppliers decide how to give out the money - for example whether to deduct it from your Direct Debit payments or refund the amount to your bank account.

Find out how your energy firm will pay your £400 energy rebate.

The £400 payment will also be extended to include people such as park home residents and tenants whose landlords pay for their energy via a commercial contract.

An extra £100 will also be given to homes that are off the gas grid to help with the rising costs of alternative fuels such as heating oil.

What does the Energy Price Guarantee mean if you're on fixed tariff?

If you’re one of 4.2 million households in the UK on a fixed tariff, you will get an automatic discount automatically applied to your tariff by your energy supplier.

But, there are some caveats.

  • If you’re on a fixed rate tariff it can be reduced by up to 17p/kWh for electricity and 4.2p/kWh for gas until you hit a ‘floor’ unit rate. 
  • On average the ‘floor’ unit rate will be 10.3p/kwh for gas and 34p/kwh for electricity if you pay by direct debit.
  • It means most households shouldn’t be paying more than 10.3p/kwh for gas and 34p/kwh for electricity - but there are a handful of homes on higher price fix tariffs who could still be paying more.
  • If you already have a fixed rate tariff below the ‘floor’ rate, you’re on a good deal and can continue befitting from lower prices until your fixed rate ends.

If you are already on a standard variable tariff, then you do not need to do anything; your bill will be adjusted automatically on 1 October.

Many firms are also waiving exit fees for customers on fixed tariffs so you can switch to the standard variable tariff.

What will happen after April 2023?

From April 2023, the EPG will run for a further 12 months (until April 2024) limiting the unit price of energy and costing the average household around £3,000- £500 more than households are currently paying. 

In reality, the average household will see bills rise by around £900 compared to now because the £400 energy discount ends in March 2023. 

For households, the Energy Price Guarantee will not cost anything right now. But, the government spending splurge will have a huge price tag. 

As announced in the Autumn Budget, the government is spending an extra £150 billion pounds extra on energy than in pre-pandemic levels including the EPG, £400 energy grant and their £700 million investment in new nuclear power plants.

Further energy bill support

Adam French
Editor, The Money Edit

Adam is the Editor at The Money Edit.
He has been working to save you money as a personal finance and consumer journalist, editor and commentator for several years. His work has appeared in the HuffPost, Which?, i paper and This is Money, plus various TV and radio as a personal finance, consumer rights and scams expert, which include BBC Rip Off Britain, LBC, 5 News, Steph's Packed lunch and Newsround to name a few. He was previously the senior consumer rights editor at Which?.

When Adam isn't working he's watching Norwich City yo-yo between leagues or walking his dog.

With contributions from