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Energy bills: your questions answered

From the best way to pay to recent price cap predictions, here's what you need to know about your energy bills
Energy bills calculations

A new energy price cap is expected to be announced by regulator Ofgem at the end of August, and come into effect on 1 October. Already, alarming predictions are painting a bleak picture of what bills might look like as winter approaches.

In a May survey, 75% of Which? members* told us that they are either fairly or very worried about their energy bills rising. 

On 2 August, experts at Cornwall Insight predicted that the price cap could jump up by 70% in October, followed by a further 7.5% increase in the new year.

Unfortunately, high energy prices aren’t going away any time soon, no matter which supplier you’re with or what tariff you’re on. But improving your understanding of your energy payments and the market overall could help you feel a bit more in control.

Here, we shed light on your payment options, the price cap and how you can make savings through the energy crisis.


Ease the squeeze on your household bills with our latest cost of living advice and tips


What's the cheapest way to pay for energy?

There are three main ways to pay for your energy usage. The best one for you depends on your household budget and how you manage your money. 

The cheapest way to pay is almost always by direct debit.

Here are the options: 

Direct debit

  • You'll pay the same amount per unit of energy (plus a daily standing charge) each month or quarter. 
  • Tends to be cheaper than paying once you receive your bill, as almost all companies offer a discount to pay this way. 
  • You'll likely build up a larger balance over summer which should then even out over winter.

If you pay by direct debit, your supplier will estimate how much they think you will use over the year, and divide it by 12 (or four) to determine a reasonable monthly (or quarterly) direct debit amount. You pay this into your account each month (or quarter), building up a little pot of credit. Your supplier then uses this to pay for the energy you've actually used - which is calculated using your meter readings. 

The more meter readings you submit, the more accurate their estimates should be. However, it's always worth keeping close track of how much your energy bills actually are, and how this matches up with the amount you're paying in each month.

If your estimates are a bit high, and you don't actually use that much, you might end up with a high credit balance.

Equally, if your estimates are a bit low and you actually use more than expected, your account will start to run low and your provider will suggest you pay more each month. 

You should expect to have a bigger credit balance in summer, which will even out over winter months when you're using your central heating. However, if you think you're building up too much credit, you can ask for it to be repaid, or to reduce your monthly payments. As a rule of thumb, you shouldn't have more than 2-3 months' worth of payments in your credit balance.

Ensure you’re aware of how much you're paying, how that relates to the amount you're actually billed for, and how much credit you're building up. Keeping close tabs on this means you'll spot any issues quickly and can resolve them before they get too problematic. 

Providers must tell you about any changes to your direct debit before they happen and clearly explain how they reached the figure they want to charge you.

Payment on receipt 

  • If you pay quarterly when you receive your bills – sometimes called quarterly cash or cheque (QCC) – you have the advantage of only ever paying for the energy you’ve actually used.
  • You'll pay once every three months, on receipt of your bill, for that quarter’s energy use.
  • Tends to be more expensive than a direct debit as it’s not discounted.

Be aware that if you pay in this way, you’ll pay a lot more in the winter months compared to the summer, as most households use a lot more energy when it's cold and dark. 

You'll also miss out on any discounts offered by companies to pay by direct debit - which is usually about 6% cheaper. 

Prepayment

  • Pay for your energy before you’ve used it. 
  • Top up a prepayment key or card at local retailers, or some providers now let you do so via a smartphone app.
  • Bills are likely to be higher than those paid by direct debit. Prepayment meters are covered by a higher price cap.
  • Some providers, such as Boost, specialise in energy supply for customers with prepayment meters. Its daily standing charge is 37p for gas and 50p for electricity.

Whether or not you use a prepayment meter might be out of your control - particularly if you are a tenant in a rented property. However, if you do have a say over your energy supply, you can head to our guide to whether a prepayment meter is right for you for more information.


Find out more: Energy tariffs explained


What is the energy price cap?

If you’re unsure about how the price cap works, you’re certainly not alone. Two in 10 (21%) of the Which? members we surveyed* said they’re not confident they know what the cap is and how it impacts their bills.

The price cap was introduced in 2019 to ensure fair prices for customers who don’t actively switch energy provider to make the most of deals. It's set based on wholesale energy rates, and because these are currently high the cap hasn’t prevented people from paying hefty sums. It only affects variable tariffs - also known as standard, default or out-of-contract tariffs.

In recent years, most people would have been on fixed energy tariffs and therefore not affected by changes to the variable cap. But because competitive fixed deals all but vanished from the market this year, there are large numbers of households currently paying variable rates for their energy. 

The cap is set every April and October by the government and calculated by the energy regulator Ofgem. They are considering doing this every three months though, and there's a suggestion that it may also increase in January 2023.

It’s not a cap on your payments, but a limit on the amount that suppliers can charge for each unit of energy you use and your daily standing charge, if you're on a variable or default tariff. 

How providers split the unit rate and standing charge is up to them, and dependent on the region you live in, but the total cost cannot be higher than the cap.

The widely reported £1,971 figure from the 1 April 2022 price cap is an illustration based on a household using a medium amount of energy, defined as 12,000kWh of gas and 2,900kWh of electricity per year. 

On 2 August, experts at Cornwall Insight predicted that this same 'typical' household could see annual bills rise to £3,358 from October 2022 and reach £3,615 a year from January 2023. That's a 70% jump in October, followed by a further 7.5% increase in the new year.

When you find out your unit rate, you'll need to multiply this by your household’s usage in annual kWhs - which you can find on your energy statements - to figure out what you'll actually be paying based on the units you use.


Find out more: what the price cap is and how it impacts your energy bills


Are all energy providers charging the same?

Gas and electricity bill

Household energy bills consist of unit charges for gas and electricity (paying a set rate for each unit of energy you use), as well as a daily standing charge for each. These are the fees you pay to access the energy network - much like telephone line rental. 

If you are on a standard variable tariff, typical unit rates for people paying by direct debit are currently 28p per kWh of electricity and 7p per kWh of gas. 

When we calculated an average variable unit rate across the UK’s regions (inclusive of VAT and rounded to the nearest pence) for 15 of the most popular energy firms, we found that all companies were charging very similar amounts for their variable unit rates for both gas and electricity.

As for daily standing charges, meant to cover energy suppliers’ costs, some customers report they now pay 51p per day – more than £186 per year without even using any electricity.

The typical standing charge now sits at 45p for electricity. The majority of energy firms we looked at were on par with this. For gas, 13 of the 15 providers we looked at all had average gas standing charges of 27p. 

Utilita is the exception. It doesn’t have a standing charge but instead charges a ‘first rate’ of 20p for the first 2kWh of gas used in a household each day, followed by 7p for the rest. For electricity its ‘first rate’ each day is 50p, followed by 28p. That means you’re not paying on days you don’t use your energy at all.

If you have a fixed tariff with your energy provider, your rates will not be affected by the price cap. Some companies have offered fixed deals at more than the current price cap over the past few months. Fixing a deal always used to be the cheapest option, but at the moment it's more of a gamble. 

Fixed deals have been few and far between this year. People who have fixed into tariffs this summer will be paying more than their provider's variable tariff right now, in the hope that when the next price cap change happens they will end up paying less overall.


Boost your understanding: decoding your energy bills 


What will happen next with energy prices?

Energy bills are expected to rocket again this autumn. Energy consultancy firm Cornwall Insight predicted on 2 August that annual energy payments for a typical household paying for a variable tariff by direct debit could reach £3,358 when the next price cap comes in on 1 October 2022. That's a 70% jump. Many forecasters also expect a further jump in January 2023.

A report by the Centre for Economics and Business Research forecasted energy costs are likely to remain high, but falling, for the next three to four years.

Oliver Archer, lead analyst at Cornwall Insight expects competitively priced deals won’t be offered until at least 2023. He told us: ‘The combined effect of high commodity forecasts and the [energy] regulator’s interventions mean it is currently unlikely we will see high numbers of cheap tariffs before the New Year.’

Daniel Alchin, deputy director, retail at Energy UK said ‘competitively priced fixed deals and switching suppliers will only return when there’s a sustained fall in wholesale prices, making them at least closer to previous levels and most significantly lower than the price cap. The financial incentive to switch isn’t there right now.’

In the meantime, energy bills are expected to be a cause for concern for households up and down the country. The government is offering certain cost of living support to households, but whether this is sufficient to cover rising costs remains to be seen.


Read more: Help if you are struggling to pay your energy bill


Should I fix my energy prices? 

Any fixed energy tariff you sign up to now will almost certainly be more expensive than a variable tariff. However, those variables are predicted to go up considerably in October. 

By fixing, you’re taking a punt on your fixed tariff being lower over the next 12 or 24 months compared to your variable rate, factoring in what you might end up paying at the next two or three price cap levels. 

Remember that some providers charge hefty exit fees if you want to leave before your contract is up, which might be the case if circumstances change in the next 12 months. You have to pay exit fees if you switch out of a contract more than 42-49 days before your contract ends. Some tariffs have low or no exit fees - so keep an eye out for these if you can.

Many providers are offering tariffs to their current customers that aren't on the open market, so it's worth having a look at these if they're available to you.

However, as always, you should shop around before making a decision, rather than necessarily going straight for your provider's suggestion. 


Find out more about whether now is the time to get a fixed energy deal and how to switch supplier.


How can I reduce my energy use?

Person draught proofing a window

Any small cutbacks you can make to your energy usage could help soften the blow of climbing payments. 

Some ways to save are:

  • Washing below 30°C – Our research found even a 20°C wash can do the trick in some cases, particularly when using liquid detergent rather than powder.
  • Only use white goods effectively – Our research has found that dishwashers are, on average, four times more water efficient than washing by hand per place setting, when used at their most efficient. Try to only put yours on when it’s full and use its eco setting where possible. You’ll use 20-40% less energy and water by doing this.
  • Add loft insulation and draft proofing – Improving your loft insulation is a good way to make your home feel cosier in the winter months and bring down your bills. Getting your windows, doors, floors and skirting boards draught-proofed by a professional, which typically costs £240, could save you £95 on your annual bills.

When it comes to your energy payments, you might be able to make small savings by opting for paperless bills and managing your account online (as some suppliers charge extra for paper bills). Getting a smart meter installed, or sending regular meter readings, will ensure your bills are accurate. 

In addition, the government will roll out £15bn worth of support including £400 credit on energy bills in October, £650 for those receiving means-tested benefits, £150 for those receiving non-means-tested disability benefits, and £100-£300 for pensioners receiving the Winter Fuel Payment.


Find out more about ways to save on your energy bills and things you can do in summer to reduce winter energy costs


*Figures based on a May 2022 survey of 976 Which? members who are solely or jointly responsible for paying their bills.