Ofgem begins review of prepayment premium

Ofgem began a review in April 2024 of ways to remove the "premium" on prepayment meter prices permanently, according to Age UK's guidance on energy meters¹. The review follows the earlier change under which households with prepayment meters were no longer charged more for their energy from 1 July 2023¹.

The premium is the difference between what prepayment customers pay and what other households pay for the same energy. Age UK states that from 1 July 2023 households with prepayment meters "won't be charged more for their energy", and that from April 2024 Ofgem "are reviewing ways to permanently remove the 'premium' on prepayment meter prices"¹. The guidance does not set out a timetable for that review, nor any date on which a permanent change would take effect; those details have not been reported¹.

Prepayment customers remain covered by the price cap. Age UK notes that "there's a price cap on most standard variable prepayment tariffs"¹. Meters are topped up using a key or card, which can be loaded with money at local shops¹. On installation, the guidance states that customers "shouldn't have to pay to have a prepayment meter installed"¹, and that suppliers "shouldn't install prepayment meters in the most vulnerable households"¹. Some suppliers attach conditions to prepayment tariffs, for example that a customer holds a current account or has been debt free for at least three months¹.

Separately, a compliance review by Ofgem means that customers identified as having had a prepayment meter wrongly installed to recover energy debt, or where supplier processes were not followed adequately, between 1 January 2022 and 31 January 2023 will be due compensation¹. Age UK states that some of those customers will have a portion of their debt written off¹.

Why it matters for households

Households on prepayment meters pay for energy in advance, usually through a key or card topped up at local shops¹. The premium is the amount by which their unit prices and standing charges exceed those on other payment methods. The July 2023 change removed that difference on a temporary basis, and the review that started in April 2024 concerns making the removal permanent¹. Until a permanent decision is made and takes effect, the position rests on the existing arrangement rather than a settled rule, and no end date for the review has been reported¹.

The compensation process covers a defined group: customers whose prepayment meters were installed to recover energy debt, or where supplier processes were not followed adequately, between 1 January 2022 and 31 January 2023¹. For those customers, money is due, and in some cases part of the debt is written off¹. The guidance does not state amounts or payment dates¹.

What happens next

Ofgem's review of permanently removing the prepayment premium is under way from April 2024¹. No outcome, consultation or implementation date is given in the guidance¹. The compensation exercise for meters wrongly installed between 1 January 2022 and 31 January 2023 also continues, with no payment timetable stated¹.

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