This guide will help you understand the prepayment safeguard tariff introduced on 1 April 2017. It explains what the cap is and what it means for the price you pay for energy if you have a prepayment meter, who the safeguard tariff applies to and how the cap is set.
Prepayment energy safeguard tariff explained video
What is the prepayment safeguard tariff?
It’s a tariff set to safeguard energy customers who pay for their energy using a prepayment meter. The Competition and Markets Authority (CMA) introduced it as part of its package of remedies after Ofgem referred the energy market for investigation to them. They found that if you’re a prepay customer you have fewer tariff choices and pay disproportionately more than customers who pay in other ways, like direct debit or credit. You can see how prepayment prices compare on the Ofgem Data Portal. They also found prepayment customers to be more likely in vulnerable circumstances and in debt, and so further disadvantaged in the market.
The safeguard tariff limits how much a supplier can charge a prepayment meter customer per kWH (this is the ‘unit’ measure which your bill is calculated from). It doesn’t cap the cost of your total bill. That’s because the amount you pay also depends on the amount of gas or electricity you use. The more energy you use, the bigger a bill will be.
The level of your bill under the cap will depend on:
- the supplier you’re with
- how much energy you use
- the kind of prepayment meter you have.
The safeguard tariff will last until December 2020 when smart meters, alongside other advances in the energy industry, are expected to bring about easier access to better deals.
Does the safeguard tariff apply to me?
It applies to you if you:
- pay for your gas or electricity in advance using a prepayment meter (including through a coin-operated meter)
- are on an energy tariff that requires you to prepay
- have a standard meter, ‘first generation’ smart meter, or restricted meter (such as ‘Economy 7’ and ‘Economy 10’ meters or dynamically teleswitched meters in Scotland, like the ‘Total Heat, Total Control’ and ‘Comfort Plus’ meters).
It does not apply to you if:
- your smart meter is ‘fully interoperable’, meaning your meter can continue to fully work its smart functionality if you switch supplier.. Households with these meters (sometimes referred to as ‘second generation’) are excluded from the cap as your meter can give you access to cheaper deals in the market and makes it easier for you to switch.
Around 4.5 million prepaying households will initially benefit from the safeguard tariff. We expect this number to fall as prepayment customers gradually move to smart meters.
You can find out more about meter types at Understand smart, prepayment and other energy meters.
Do I need to do anything?
No. Your supplier must automatically ensure its prices fall below the level of the cap.
How is the level of the price cap set?
As the energy regulator, Ofgem administers and sets the level for the cap. We do this based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity services to a prepayment customer. We update the level of the cap every six months, in April and October.
Calculating the cap
To calculate what the cap should be, we:
- take the benchmark figure for the price cap level, initially set by the CMA
- update the CMA benchmark using three indices:
- wholesale energy prices for the six months before the cap is set
- environmental levy forecasts from the Office for Budget Responsibility.
- inflation from the Consumer Price Index
- calculate an allowance for network charges (the costs to transport energy to you) from network companies’ published charges. This causes the cap to vary by region.
- add ‘headroom’, this is a design of the CMA’s cap methodology to allow suppliers to offer competitive deals beneath the level of the cap.
We publish the cap levels for a customer that does not use any energy, and for a customer that uses an assumed amount of energy. The assumed value works in a similar way to Typical Domestic Consumption Values you may see on price comparison websites, where they are used to calculate the cost of a typical energy bill. We can then get a cap level for all other possible consumption levels using these values.
Why are there regional differences in the level of the cap?
In general, suppliers set prices based on differences in network charges. This means that the price you pay reflects how much it costs to transport energy to the region you live in. Cost reflective charges are a reasonable way to allocate the costs to run and maintain the energy network between customers. It encourages energy companies to be more efficient, for example by incentivising energy generators to set up nearer towns and cities to cut transportation costs. These efficiencies can then be passed on to customers through cheaper tariff offers.
Find out more about the network part of your bill at The energy network: How it works for you
What are the levels of the prepay price cap now?
You can view the cap levels for each region and meter type on our industry guidance page.
How can I reduce the price I pay for my gas and electricity as a prepayment customer?
The prepay price cap we administer gives you peace of mind that you are paying a fairer price based on the real costs of energy. But you could still save by shopping around to a different tariff or supplier.
Where you can, switch to a fixed tariff to cut your bill prices further – doing so could also make it easier to repay a debt if you have one. See our energy guides below for more advice.
More energy guides
- How to save money on gas and electricity bills
- How to switch energy supplier and shop for a better deal
- How to switch energy supplier if you’re in debt
- How to switch energy supplier if you’re a tenant
- Compare gas and electricity tariffs: Ofgem-accredited price comparison sites
- Compare supplier performance on customer service
- Get extra help from energy services
- Understand smart, prepayment and other energy meters
- Rules on energy supply disconnection and prepayment meters