What is Energy Price Guarantee and what does it do?

The Energy Price Guarantee was introduced in Autumn 2022 to replace the Ofgem energy price cap. It was originally going to fix prices in place for 2 years until 2024.

There's been a couple of changes to government policy since. When new chancellor Jeremy Hunt entered office, he updated the policy and the £2500 rate was set to end in April 2023. But due to a u-turn, prices will now be kept at £2500 for three more months until the end of June 2023.

This means two things for your energy prices:

• The Energy Price Guarantee will continue until June 2023. 

• Energy prices will no longer increase to £3000 a year for an average household in April.

• Bills will seem slightly higher than before, because the £400 energy grant is coming to an end.

• The £400 grant was specifically to tackle the additional cost of heating bills over the winter months.

• Energy prices are projected to decrease from July onwards, although what that looks like specifically, nobody can say for sure.

What does the Energy Price Guarantee do?

The Energy Price Guarantee is a government policy announced by former  former Prime Minister Liz Truss to tackle the cost of living crisis. Energy bills caused by rapid changes in the energy market and unprecedented wholesale energy prices were a huge contributor to the crisis.

The Energy Price Guarantee was originally a two-year energy price freeze that was then reduced to a six-month energy price freeze. The average household was going to pay no more than £2500 a year for energy under the scheme. This was due to increase to £3000 a year in April 2023, but the £2500 rate will now be extended until the end of June 2023. 

The Energy Price Guarantee means household gas and electricity bills will stay below the rate of the Energy Price Cap, and will be fixed at £2500 until the end of June 2023.

What's the difference between the Energy Price Guarantee and the Energy Price Cap?

• The Ofgem Energy Price Cap is  protection for energy bill prices that was in place for years, but the way it was calculated made bills unaffordable. 

• The Energy Price Guarantee is cheaper than the energy price cap, even if it's no longer frozen until 2024. The average household will pay no more than £2500 a year until the end of June 2023. 

Why was the energy price guarantee changed?

New chancellor Jeremy Hunt reduced the length of the Energy Price Guarantee £2500 rate from two years to six months to save the government money. He said the new policy made the Energy Price Guarantee cost "significantly less than planned."

But another change in policy means the Energy Price Guarantee will now be kept at £2500 until the end of June 2023.

When will energy prices come down?

Wholesale prices for gas have started to come down, and they were the main cause of rising energy costs. 

Electricity prices were affected by the crisis, but the main cause was natural gas supplies. You can see a full rundown of the main causes at our handy energy crisis blog.

The way energy suppliers buy energy means that wholesale price changes aren't reflected in your energy bills for a few months. Most suppliers in business now use a method of buying called "hedging" which you can also read about in our energy crisis blog.

The quick version is that hedging is a method of buying energy for months in advance based on projected customer demand, and setting prices for those months based on the price of energy when it was bought by your supplier. This means that energy suppliers can meet customer demand and stay in business. 

Most analysts think that energy bills will drop from around July 2023. This is because the energy was bought in early 2023 for lower prices. Cheaper energy tariffs could be available from suppliers from that date. As soon as we have cheaper tariffs from our suppliers, we're passing them straight on to One Utility Bill customers.

Wholesale energy prices vs energy bills is a complex topic, so we have a whole blog just on that.

What is the Energy Price Cap?

The Energy Price Cap is the maximum price for electricity and gas when prices fall below the Energy Price Guarantee. Suppliers can’t charge more than this for the standard variable tariff, their default offering since 2021. It’s set by Ofgem, a government regulator.

The cost of gas and electricity went up dramatically over the last couple of years, so the cap stopped being a helpful way to control prices. That’s why the Energy Price Guarantee was introduced

The Price Cap is set in price per kWh, which is the cost per unit of energy, but you'll usually hear people talk about it using the annual cost for a typical household instead. This is what headlines referring to figures like “£2500 a year" mean.

In reality, everybody's bills are different depending on how many people live in your house, and your usage. 

On the other hand, the Energy Price Guarantee has been set by the government, and doesn't change based on energy costs.

We have a rundown of the energy crisis in our blog. It's particularly useful if you want to see how charges are calculated and the factors that contributed to wholesale energy costs getting so high.

Why did the government need to reduce energy bills?

In October 2022, gas and electricity prices were due to increase by 80%, from £1,971 to £3,549 per year. This was an increase from £0.28 per kWh to £0.52 per kWh, and more than a lot of people could afford. Prices would also have increased quarterly after that.

When the Energy Price Cap could no longer keep bills affordable, the price freeze AKA the Energy Price Guarantee was announced by the government in September 2022 to give a longer period of time before rates went up again.

The Energy Price Guarantee is still more expensive than previous prices, but is still less than the October '22 price cap was planned to be by about £500.

While the change has saved people money, the prices are still two or three times what they were a couple of years ago, and unaffordable for many.

Will my prices change?

If you're a One Utility Bill Customer, check your dashboard to see your new price. 

Your monthly direct debit or card payment to One Utility Bill includes energy, among other things, so changes like the Energy Price Cap and Energy Price Guarantee affect your payments.

All together, One Utility Bill customers received £2.8 million in bill reductions over the winter as we passed on the £400 energy grant, something not all bill management companies or landlords did.