From today 29 million households will be paying more for their energy — just as the temperature dips and the nights draw in.
Dual fuel homes not on a fixed rate deal face a 27 per cent rise in gas and electricity prices, even after action by the government to limit costs.
After a year of soaring wholesale fuel prices, an increase in the cap set by the regulator Ofgem on what suppliers can charge per unit had been expected to take the average household bill from £1,971 a year to £3,549 from October 1. Last October it was £1,277.
The government has, however, stepped in with an energy price guarantee — a new cap that means the average household’s usage will work out at £2,500 a year.
This £2,500 figure has been much bandied about since the announcement on September 8. But many families will be paying considerably more than £2,500 a year. The guarantee, which involves the government paying suppliers millions of pounds, is only a limit on the price per unit of gas and electricity — it is not a limit on your overall bill.
Households on variable tariffs will now pay a maximum of 34p per kilowatt hour (kWh) of electricity (up from 28p), and 10.3p per kWh for gas (up from 7p).
Those who were so worried about rising energy bills that they locked into a fixed tariff at rates higher than that will get a unit rate discount of up to 17p per kWh for electricity and 4.2p per kWh for gas.
To put unit prices into context, a Bosch tumble dryer uses 4.63kWh of electricity for the average cycle, so the average cost per use for a variable tariff customer has gone from £1.30 to £1.57. To work out how much your appliances cost to run, multiply their energy consumption in kWh by the unit price of electricity or gas.
You also pay your supplier a daily standing charge, regardless of how much energy you use. That’s why your smart meter will show a surprising amount of money spent if you check it first thing in the morning, before you have even turned on a light.
Suppliers’ standing charges vary — some offer a good deal on gas, but charge more for electricity, and others do the opposite. But Ofgem has set maximum charges of 46p a day for electricity and 28p for gas. This means that you could pay up to £270 a year, even if you used no energy at all.
The cap on standing charges will be reviewed in January.
Although suppliers’ varying standing charges can make a difference, the size of your bill really comes down to how much energy you use.
British Gas said that the annual bill for a typical low-energy-consumption home, such as a one-bedroom flat, will rise from £1,326 under the old cap to £1,712 under the price guarantee brought in today. A high usage property such as a five-bedroom house, which would have had an average annual bill of £2,660 can now expect to pay £3,492.
These figures may come as a surprise to the 38 per cent of people who told Uswitch that they believed the energy price guarantee would mean they would pay no more than £2,500 a year.
All households should submit a meter reading today if they have not already, to ensure that energy used before today’s price increase is charged at a lower rate.
What help is coming
Households can get up to £1,500 to help cover energy bills, depending on their personal circumstances.
Most homes in council tax bands A to D will have already had a £150 rebate on their council tax bill and everyone is due to get a £400 discount on their energy bill. This will come in six monthly instalments between now and April — two of £66 and four of £67.
How you will get this depends on your supplier. British Gas, EDF, Ovo Energy and Scottish Power will pay the money straight into their customers’ bank accounts. Eon, Octopus, Utilita, Shell Energy, So Energy and Utility Warehouse will apply it as a discount on their customers’ monthly bills.
Some 8.9 million people on means-tested benefits such as Universal Credit will get £650 in two instalments — the first chunk was paid to most people in July and the second will arrive any time now.
Millions of pensioners who get a winter fuel payment of up to £300 a year will get an additional one-off £300 in November. Six million people in receipt of disability benefits will get a one-off £150 payment. The payments will be made automatically, you do not need to apply.
How to pay for it
“People are looking for long-term ways of cutting their energy bills and are now comfortable investing a lump sum upfront to fund these measures,” said Manooch Suree from the mortgage broker Zinga Financial Services.
“One client recently borrowed against their home so that they could install solar panels and insulation.”
Nationwide Building Society, Santander, TSB and the Co-operative Bank offer green additional borrowing loans where homeowners can get a slightly discounted rate if they are topping up their mortgage to fund energy saving measures.
Homeowners with 40 per cent equity pay 4.44 per cent for additional borrowing with Nationwide, while the green version of the loan has a rate of 4.34 per cent. Borrowers will pay their interest separately to their main mortgage deal. Santander offers a discount of up to 0.25 percentage points on green additional borrowing. It said 5 per cent of additional borrowing was used for this, with customers taking out an average of £17,000 since the deal began in June. The most popular measure was new glazing.
Older homeowners may consider equity release. Some 13 per cent of equity release borrowers used the money to finance energy efficiency improvements, according to Legal & General and the Centre for Economics and Business Research.
Samuel Mather-Holgate from Mather and Murray Financial, an advisory firm based in Swindon, said: “We are seeing this trend increase and think it’s sensible. I have just submitted an equity release application for a couple to install solar panels and a battery on their four-bed detached house. This will cost £18,000, but the energy generated by the panels will cover that initial investment in less than six years.”
Extra debt should not be taken on lightly, however, particularly while mortgage interest rates are rising so sharply. Homeowners must weigh up how quickly their home improvements will pay for themselves.
Monthly repayments on a £20,000 green loan from Nationwide at 4.34 per cent would be £109 a month, or £1,308 a year for 25 years. This would halve the £2,600 annual energy bill savings in the above example, so it would take more than 16 years for the improvements to pay for themselves, rather than eight.