Ofgem explains why some will see 'extra payment' on energy bills from today despite price cap drop

Many billpayers will be paying less on their energy bill from today (April 1).

Energy regulator Ofgem has now dropped the price cap by 12.3 per cent, bringing it from £1,928 to £1,690 a year for a typical dual fuel household in England, Scotland and Wales. However, while households will see an average drop of £238, an additional charge will be added to many people's bills from today.

That's because Ofgem has announced a temporary additional charge of £28 a year - or £2.33 a month - which will appear on bills from April 1. Ofgem said it is introducing the one-off extra charge to ensure suppliers have enough funds to help vulnerable households pay their bills.

Read more: Money changes in April: DWP and HMRC payments, wage boost, price hikes, new laws and more

The regulator highlighted that the temporary payment is 'partly offset' by an £11 annual allowance which covered debt costs related to the Covid-19 pandemic coming to and end.

Not all customers will be hit by the new additional charge. Ofgem confirmed that it will only be added to the bills of customers who pay via Direct Debit or standard credit. This means those who pay through a prepayment meter will not have to pay it because prepayment customers, who top up as and when they need it, do not generally build up the same level of debt as credit customers.

Ofgem said: "We are also allowing a one-off extra payment of £28 per year (£2.33 per month) to make sure suppliers have sufficient funds to support customers who are struggling. This will be added to bills of people who pay for their energy by Direct Debit or standing credit. The temporary payment is partly offset by the end of an allowance worth £11 per year that covered debt costs related to the COVID pandemic."

The regulator has also introduced plans to stop prepayment customers from paying higher standing charges than others by 'levelling' the rates. This has resulted in a rise in standing charges for most people.

Ofgem said: "From 1 April 2024 prepayment customers and Direct Debit customers covered by the price cap will pay the same standing charge, known as ‘levelisation’. This policy replaces current support through the Energy Price Guarantee which expired at the end of March 2024. The introduction of a levelisation allowance within the price cap will mean that Direct Debit customers will typically pay £10 more per year. However, prepayment customers will typically pay £49 per year less (or £52 per year less including VAT)."

Due to the price cap change, the average household on a standard variable tariff (SVT) is expected to spend £127 on energy in April, compared with £205 in March, due to the combination of cheaper rates and lower usage as the weather warms up.

The difference between a week’s worth of energy at the previous rates compared with a week in April on the new rates is around £4.65 for the average household, according to Uswitch.