Energy bills: your questions answered

A new energy price cap is coming into effect on 1 October. Energy regulator Ofgem will be reviewing these figures every three months from January 2023, and alarming predictions are painting a bleak picture of what bills might look like in coming months.

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.

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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

How can I reduce my energy use?

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 efficiently – Try to only put your washing machine and dishwasher on when they're full and use eco settings where possible. 
• 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.

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