Ofgem announces lasting solution to eliminate prepayment meter premium

Ofgem, the energy regulator, announced on 23 February 2024 a lasting solution to eliminate the extra costs for paying for energy using a prepayment meter¹. The change means people who use a prepayment meter will no longer pay more than those who pay by Direct Debit¹.

The announcement came alongside the new price cap. From 1 April to 30 June 2024, the price for energy for a typical household using electricity and gas and paying by Direct Debit will fall to £1,690 per year, which is £238 lower than the cap set between 1 January and 31 March 2024 (£1,928)¹. From 1 April 2024, the standard credit (receipt of bill) cap level will be £1,796, a £261 (13%) decrease compared with the previous level¹. The amount people pay depends on actual household usage, where they live, and their meter and payment type¹.

Ofgem said it had not made a final decision on the extra costs for people who pay for energy when they receive their bill¹. It plans to continue exploring how to tackle the issue and will publish a consultation by the end of the year; if implemented, a reduction or end to this extra cost would happen from April 2025¹. People who pay on receipt of bill will still pay an additional £106 compared with paying by Direct Debit, reduced from £130¹.

Fair By Design said the announcement followed years of campaigning to eliminate this poverty premium, and that its consultation response calling for the equalisation of payment methods in energy was submitted in December 2023¹. The group also said it is calling for a social tariff, a targeted discount energy tariff for qualifying low-income consumers¹.

Why it matters for households

Households that pay for gas and electricity by prepayment meter will no longer face a premium over Direct Debit customers under the announced solution¹. Households that pay when they receive their bill still pay £106 more than those paying by Direct Debit, down from £130¹. The new cap levels run from 1 April to 30 June 2024, and what any household actually pays varies with usage, location, meter and payment type¹. Any change to the standard credit premium would take effect from April 2025 at the earliest, and only if Ofgem decides to implement it¹.

What happens next

Ofgem will publish a consultation on the extra costs for people who pay on receipt of bill by the end of the year¹. If implemented, a reduction or end to that extra cost would happen from April 2025¹. The regulator has not made a final decision on the issue¹.