Ofgem announced the energy price cap for the first quarter of 2024 on Thursday 23 November 2023, and published a statutory consultation on levelling standing charges for prepayment meter and direct debit customers so that both pay the same daily charge1. The price cap will increase by 5% on the previous quarter, running from 1 January to 31 March 20241.
For an average household paying by direct debit for dual fuel, the cap equates to £1,928, a rise of £94 over the course of a year, or around £7.83 a month1. The cap, updated every quarter, sets a maximum that can be charged to customers for energy bills1. The increase is attributed almost entirely to rising costs in the international wholesale energy market due to market instability and global events, particularly the conflict in Ukraine1.
The consultation sets out an enduring solution to what has been called the prepayment meter premium. Previously, prepayment customers were charged more than direct debit customers to cover the additional costs and resources suppliers required to provide their services1. In October 2022 the government introduced measures to temporarily remove this premium via the Energy Price Guarantee, which remains in place until April 20241. Ofgem proposes to levelise these standing charges to coincide with the end of that government support, and also sets out proposals to share the costs of bad debt more equally across customers to reduce the premium paid by standard credit customers, those who pay on receipt of a monthly or quarterly bill for the exact amount of energy used1.
Under the terms of the proposal, prepayment customers would save around £50 a year, standard credit bills would fall by around £45 a year, and direct debit customers would pay around £20 a year more1.
"This is a difficult time for many people, and any increase in bills will be worrying. But this rise, around the levels we saw in August, is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay."
The Retail Energy Code Company, which Ofgem selected to develop the systems and processes to levelise bills between prepayment meter and direct debit customers, said the consultation opened on 23 November and is open until 2 January 20243. It set out the proposed sequence: a first phase of levelisation of prepayment meter and direct debit standing charges from April 2024, followed by a second phase of levelisation of debt-related costs between standard credit and direct debit customers, to be implemented no earlier than October 2024, with both stages supported by a reconciliation mechanism3. The company said it is on track to deliver the proposed reconciliation mechanism from April 2024 and has raised the accompanying REC Change Proposal3.
Ofgem has also launched a Call for Input on standing charges running until 19 January 20241. The two sources that report this date give it as 19 January 2024, while the Retail Energy Code Company gives the statutory consultation closing date as 2 January 20241.
| Payment method | Proposed annual effect |
|---|---|
| Prepayment meter | Save around £50 |
| Standard credit | Reduce by around £45 |
| Direct debit | Add around £20 |
Why it matters for households
Standing charges are the fixed daily amount paid regardless of how much energy a home uses, and they sit alongside the unit rates within the cap. For a household on a prepayment meter, the proposal would end a long-standing difference in the daily charge compared with direct debit, a difference that has been covered temporarily by the Energy Price Guarantee since October 20221. For a household paying by direct debit, the same proposal would add around £20 a year, because the costs currently carried by prepayment and standard credit customers would be spread more evenly1. The change would therefore shift costs between payment methods rather than remove them from the system as a whole. The separate Call for Input concerns how standing charges are set in general, which affects every household's fixed daily cost and the share of a bill that cannot be reduced by using less energy1.
What happens next
The statutory consultation is open until 2 January 20243. The Call for Input on standing charges runs until 19 January 20241. The Retail Energy Code Company is hosting a progress webinar on 30 November to confirm when the new levelisation system will be implemented, how the scheme will operate, the changes being made to REC legal text, the latest data reporting requirements, and to answer stakeholder questions3. The next quarterly price cap announcement will be made in February 2024, covering April to June 20241.