Prepayment meter tariffs cost £200 too much
Some energy suppliers claim that prepayment meter tariffs are a great way to manage your energy consumption, but don’t let them fool you into paying well over the odds.
Current tariff rates indicate that households on prepayment meter tariffs are spending hundreds of pounds more per year than households with credit meters.
For a London household that uses the national average consumption levels of gas and electricity, the median price for prepayment meter tariffs is almost £1,160 annually (Last updated: June 2020). For direct debit tariffs, it’s just around £970. That’s a difference of nearly £200.
Why are prepayment customers paying more?
According to energy regulator Ofgem, there are just over 4 million households with prepayment meters, which represents about 15% of all energy customers in Great Britain.
Unfortunately for these customers, they don’t have many options to choose from when it comes to switching to a more affordable prepayment meter tariff.
Even though all suppliers must offer prepayment meter tariffs to current customers with financial difficulties, only companies with more than 50,000 customers must offer these tariffs to new customers. Many small energy suppliers have opted against providing prepayment meter tariffs.
The outcome of this is that while there are over 270 available tariffs for customers with credit meters, there are just under 40 prepayment meter tariffs currently available.
Of these offers for prepayment customers, just three are fixed-rate tariffs (meaning the rates are guaranteed for the duration of the agreement). Nabuh Energy offers two fixed plans and EDF Energy provides the other. In comparison, customers with credit meters have more than 180 fixed-rate tariffs to choose from.
When it comes to choosing an energy tariff, fixed-rate tariffs are usually less expensive than variable-rate tariffs (in which the prices fluctuate with the wholesale cost of energy). Given the few fixed-rate prepayment tariffs available, households with prepayment meters are more likely to be on an expensive variable-rate tariff.
According to Ofgem, less than 10% of prepayment customers are actually on a fixed-rate tariff – and even these fixed tariffs cost significantly more than your average direct debit tariff because they require more effort from the supplier than just taking automatic monthly payments.
Are prepayment meter tariffs making the poor poorer?
Prepayment energy meters are typically installed when customers have a poor payment history, don’t have a bank account or live in certain types of accommodation, such as student housing.
As stated in energy regulator’s most recent State of the Market report, customers on prepayment meter tariffs are “more likely to be in vulnerable circumstances and face more barriers to engage effectively with the market and access the best market deals.”
For low-income households, paying a higher rate for energy can have a disproportionately harmful impact on daily life.
According to Ofgem’s report, the average household spends around 4% of its budget on energy, while low-income households spend almost 8%. In other words, low-income households are spending twice as much as the average household on energy in relation to their income levels.
A consequence of this is that these low-income households are more likely to under-heat their homes or not cook hot meals, thus negatively affecting their health and well-being.