Families may be waking up to higher heating bills on New Year's Day, but the good news is you're likely to be paying pennies rather than pounds in most cases.
However, customers on Economy 7 energy tariffs - where they pay less at night and more during the day - will be the worst affected, thanks to a loophole in Government support.
Households facing big bills after December's cold snap and Christmas have been panicked by letters and emails from their suppliers telling them that the price cap will rise from £3,549 per year to £4,279 from January 1, with many taking to social media to ask what's going on. News of a price change has worried many customers, who thought the tariff rates had been set until the end of March, after which the Energy Price Guarantee of £2,500 for the average home rises to £3,000.
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The confusion has arisen because, although no-one pays the full rate thanks to the Governments' Energy Price Guarantee (EPG), the energy price cap changes every three months and suppliers have written to their customers to tell them of the new - theoretical - rate.
The EPG, which started in October, works by discounting the price cap rate for all households, offsetting the difference between the price cap and the price guarantee. When the cap rises on Sunday, the Government needs to increase the level of support to keep bills at a typical £2,500/year. From January, the discount will be 31.8p per kilowatt hour (kWh) for electricity (up from 17p/kWh), and 6.4p/kWh for gas (up from 4.2p/kWh).
However, the way Ofgem calculates the cap on Economy 7 plans is different to other deals and the discount provided by the guarantee does not take this into account. Supplier Octopus has sent a letter to its Economy 7 customers, explaining that that prices are rising by 37% but the discount provided by the EPG is increasing by 30% — leaving a seven per cent shortfall. Exactly how much bills will rise varies between suppliers but customers who have multi rate tariffs, such as Economy 7 or 10 may pay less for their off peak night unit rates and more for their peak day unit rates.
Bulb, So Energy, E.On, EDF, British Gas, Utilita, Utility Warehouse and Shell Energy have all confirmed that customers on Economy 7 tariffs will likely experience an increase, although most declined to say how much.
Customers with standard tariffs who paying for their bills by cheque or cash when they receive them will also see a small increase, as will those on prepayment meters. Customers who pay by monthly direct debit should not see a change, and in the North East, will actually pay slightly less than they have been.
The £2,500 often quoted for typical use is based on 2,900kWh of electricity and 12,000kWh of gas a year and is an average cost throughout the country. What you pay under the energy price guarantee depends on how much you use, which region you're in and how you pay for your energy.
While it might not feel like it, the Northern region actually pays the lowest bills in the UK. As well as Economy 7 customers, those who pay when they receive their bill will find their annual costs going up in the North East, but not as much as elsewhere in the country.
The one per cent increase in costs to pay your bill when you get it does not sound like a lot, but it brings the extra cost up to 10% or £250 a year more than the average direct debit user. That's more than £20 a month and £165 more per year than those who use prepayment meters, traditionally considered to be one of the most expensive ways to pay for energy.
From January 1, the average rates are:
Direct debit: £2,434 (£2,500 UK regional average), a decrease of 0.5%
Prepayment: £2,519 (£2,559 UK regional average), an increase of 0.4%
Payment on receipt of bill: £2,684 (£2,754 UK average), an increase of one per cent
Some energy firms have decided to pass on these costs to customers, while others have not. Octopus is absorbing the upcoming rises for its customers while passing on any reductions, but most of the other suppliers have written to their customers to say their bills will rise or fall in line with the new rates.
Ian Thomson, of Energy Support and Advice Facebook group, said: "For most customers who have single rate electricity tariffs, the January 2023 price cap change and then the application of the Government EPG support will see minimal change. Those customers who have multi rate electricity tariffs, such as Economy 7, however, may experience changes to their night and day rates.
"Many are having their off peak night unit rates reduced and their peak day unit rates increased. Although this looks like bad news, it may work out better for those who rely on electricity for heating their homes this winter. All customers should check their new tariff rate cards with their own suppliers for the best clarity and understanding of the changes ahead."
Both Which? and Uswitch have advised households with traditional meters to take meter readings before energy bills rise tomorrow. Emily Seymour, Which? energy editor, told The Sun: "A small number of customers face paying slightly higher energy rates in the New Year. "If you've been notified of a price increase and have a tariff that requires meter readings, you might want to submit one before January 1 to ensure you're billed accurately."
Customers with a smart meter don't need to note down their energy usage as their meter readings are automatically sent to their supplier at regular intervals.
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