Prepayment meter standing charges levelled with Direct Debit under the price cap

From 1 April 2024, the standing charges paid by prepayment meter customers are reduced to the level paid by direct debit customers under the energy price cap, through a mechanism known as levelisation¹. The change was confirmed by Ofgem, which sets the cap, and follows a statutory consultation that closed on 2 January 2024³.

The Retail Energy Code Company, which Ofgem selected to build the systems behind the change, describes it as a first phase of levelisation of prepayment meter and direct debit standing charges, supported by a reconciliation mechanism³. A second phase, covering debt-related costs between standard credit and direct debit customers, will be implemented no earlier than October 2024³.

"From 1 April 2024, the standing charges for Pre-payment Meters is reduced to the level of Direct Debit under the price cap."

The effect on annual bills differs by payment method. Ofgem says prepayment customers who take both electricity and gas from the same supplier will save around £52 a year, while direct debit customers will pay an extra £10 a year to account for it⁴. Which? reports that price-capped direct debit tariffs cost around £47 more per year than price-capped prepayment tariffs, and that prepayment rates became the cheapest price-capped option from 1 April⁵. Around four million households prepay for their energy⁵.

The change coincided with a 12.3% fall in price-capped bills on 1 April 2024, taking the typical household annual figure to £1,690, or around £141 a month, for the April to June quarter⁴. That figure is based on medium use of 11,500kWh of gas and 2,700kWh of electricity⁴. Unit rates fell while standing charges rose: electricity moved to 24.5p per kWh with a 60.1p daily standing charge, and gas to 6.04p per kWh with a 31.43p daily standing charge⁴. The cap is reset every three months¹.

Why it matters for households

Standing charges are the fixed daily fee for staying connected, paid whether or not any energy is used⁶. For prepayment meter customers this matters more than for others, because the charge accrues daily and can build up during periods when no energy is used, a point Ofgem's consumer guidance singles out for that group¹. Until April 2024, prepayment customers paid more for the same connection than direct debit customers, a gap that fell hardest on lower-income households⁵.

For a household's energy independence, the change alters the arithmetic of how energy is bought rather than how much is used. Prepayment no longer carries a standing charge penalty against direct debit, so the cost comparison between the two methods now rests on unit rates, tariff choice and how the household manages top-ups. Prepayment customers have a very limited choice of fixed tariffs compared with other payment methods, and historically fixed tariffs have been cheaper than price-capped rates⁵. Standard credit remains the most expensive way to pay under the cap, at around £106 more per year than direct debit for a typical household⁵.

What happens next

A second phase of levelisation, covering debt-related costs between standard credit and direct debit customers, will be implemented no earlier than October 2024³. Ofgem's price cap is reviewed every three months, with changes on 1 January, April, July and October².

Sources6 cited

1. Energy consumer advice for Autumn/ Winter 2022 England and Wales, ofgem.gov.uk
2. Ofgem's energy price cap explained | Energy price are increasing., eonnext.com
3. Work continues to end the prepayment premium as the statutory consultation opens - The Retail Energy Code Company, retailenergycode.co.uk
4. Energy price cap to drop to £1,690 in April - Which?, which.co.uk
5. 1 April energy price drop: what's the best way to pay for energy now? - Which?, which.co.uk
6. Standing Charge for Energy Explained: What You Should Know, ecoflow.com