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The government has confirmed that a floor price for gas and electricity will be applied to fixed tariffs as part of the Energy Price Guarantee.
Last week prime minister Liz Truss unveiled a package of measures to address the current energy crisis which included a freeze on domestic energy bills at £2,500 per year for a typical household over two years from the beginning of October.
As with Ofgem’s price cap, the new guarantee limits the amount a customer can be charged per unit of gas or electricity, meaning the exact bill amount will continue to be influenced by how much energy is consumed.
However, questions have been raised as to how this will apply to customers on fixed tariffs, some of whom have already secured deals that are cheaper than the £2,500 limit.
The government had previously stated that unit rate reductions of up to 17p/kWh for electricity and 4.2p/kWh for gas will be applied to fixed tariffs, but it has now confirmed these will bring prices down to, but not below, floor unit rates averaging 34p/kWh for electricity and 10.3p/kWh for gas.
“We are introducing a floor because some people will have fixed at much lower prices some time ago, meaning their annual payments will already be below the £2,500 average set by the Energy Price Guarantee,” an updated government factsheet explained.
The Department for Business, Energy and Industrial Strategy (BEIS) said there customers will not receive a discount for the duration of their contract.
Meanwhile, the small number of consumers who have fixed their tariff at rates which exceeds the £3,549 price cap level announced by Ofgem last month will receive the full discount of 17p/kWh for electricity and 4.2p/kWh for gas but will still have unit rates above the floor.
“This will ensure that a fair price is paid by everyone,” BEIS added.
Average standing charges will remain in line with the levels set by Ofgem for the default tariff cap from 1 October at 46p per day for electricity and 28p per day for gas for a typical dual fuel customer paying by direct debit.
The cost-of-living crisis will be discussed in more detail at the Utility Week Forum in November. For more information and to book your place click here.
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