Prepaid gas and electricity. What are Prepayment Meters?
Prepaid energy is mainly for those who struggle to pay bills or have a bad credit score. However, prepayment meters can help you budget and plan ahead. Read our guide to find out the pros and cons of prepayment meters and how to switch to a standard meter.
What are prepayment energy meters?
Prepayment meters are a type of energy meter that requires you to pay for your gas and electricity before you use it. This ‘pay as you go’ energy allows you to top-up your meter using a smartcard, key or sometimes online.
How do prepayment meters work?
Prepayment meters work just like pay-as-you-go mobile phones. You have to top-up your meter with credit to use any gas or electricity. When you run out, you’ll have to add more credit.
Buying your energy in units before you use it means that you’ll know exactly how much gas and electricity is available and when it’ll run out. The more energy you use, the quicker your credit on the meter will run out.
Prepayment meters have limited access to different tariffs. You’re unlikely to find the best energy deal on a prepaid meter.
How do I top up my prepayment energy meter?
There are a variety of different ways you can prepay for energy, it largely depends on the model of your prepayment meter.
Here are the three main ways to top up:
- Via smartcard, token or key - if you have a physical card or key, you can top up your prepayment meter in a shop. You can top-up your prepaid meter at PayPoint, Payzone or the Post Office.
- Via coins - some prepayment meters are still coin-operated which means you load money into the meter itself to buy energy. However, this is becoming increasingly rare.
- Online, text or phone - many energy suppliers now allow you to top-up your prepayment meter online or over the phone which is much more convenient.
How do I read a prepaid meter?
To take a prepayment meter reading you have to press a button on the meter which is usually blue.
By pressing the button you’ll switch the display from showing your remaining credit to show the actual meter reading. Your actual meter reading will be displayed just like any standard meter.
Prepayment meter price cap
Prepayment meter prices are capped after the Competition and Markets Authority (CMA) found that those who prepay for energy were paying the most. Those on standard meters could make huge savings by switching energy suppliers. However, prepayment meters have limited suppliers and tariffs to choose from, meaning the average prepayment tariff is more expensive.
As a result, energy regulator Ofgem introduced a price cap on prepayment meters in 2017. This limits how much customers can pay for gas and electricity when on prepay.
The most recent price cap was set in October 2020 and stands at £1,070/year for a typical energy usage. Price caps are updated every six months.
The prepayment meter price cap was due to end at the end of 2020. However, the government can extend it to 2023. Ofgem recommends that the price cap is extended to at least the end of 2021.
Can I use as much energy as I like because of the price cap?
Unfortunately, you can’t use loads of energy and be guaranteed to only pay £1,070 a year. The price cap depends on your usage and location.
£1,070 is based on a ‘typical’ user that Ofgem deems the standard usage of gas and electricity each year.
The price cap sets a limit on the cost of a unit of gas and electricity. So, if you use more than a ‘typical’ user, you’ll be paying more than £1,070 a year.
Who is a prepayment meter suitable for? Why would I want one?
Prepayment meters are often suited to landlords as they can be guaranteed that tenants will pay for their energy as they have to prepay. Tenants can’t leave the landlord to deal with any outstanding bills as they pay for their gas and electricity upfront with a prepayment meter. It offers a level of protection for landlords.
You might also want a prepayment meter to hold yourself accountable if you struggle to pay bills on time. If you are in debt to your energy supplier, they might install a prepayment meter to ensure that you pay for your energy upfront.
With this in mind, prepayment meters aren’t typically suited to the average household. We’ll discuss why later in the guide.
Why do I have a prepayment meter?
If you find that a prepayment meter is installed or is going to be installed in your property, it’ll be due to one of the following reasons:
- Bad credit history - if you have a poor history of paying bills, your energy supplier might install a prepayment meter in your property. This will give the supplier added protection as you must pay for energy upfront.
- In debt - if you’ve been in debt to your energy supplier, as a last resort they might apply for a warrant to install a prepayment meter in your property. Each time you pay for energy on the meter, you’ll pay a bit extra to also pay off your debt.
- Renting - if you’re renting or living in student housing, your landlord might have installed a prepayment meter so you can’t leave any unpaid energy bills behind.
- Previous owners - if you move into a property with a prepayment meter, it might be due to the previous owners not paying etc.
- Financial reasons - if you want to control your spending and budget on energy, you might want to install a prepayment meter. However, you could end up paying more than you would on a standard tariff.
Are prepayment meters more expensive?
Prepayment meters are usually more expensive than standard meters. According to energy regulator Ofgem in August 2019, the cheapest prepaid tariff was £1,052 and the cheapest direct debit tariff was only £846. That’s a difference of over £200!
So yes, in general, prepayment meters are more expensive than standard meters. The best suppliers and deals aren’t usually available for customers who prepay, meaning their options are limited.
Why is prepaid gas and electricity more expensive?
Prepaying for your energy tends to be more expensive for several reasons:
- Inconvenience - energy suppliers much prefer regular monthly direct debit payments, which is why the cheapest tariffs tend to be via direct debit. Prepayment meters are more effort for suppliers and so they don’t offer great deals.
- Less choice - standard meters have far more tariffs and suppliers on offer than prepayment meters. This means you can shop around and switch suppliers to find the best deal. We still recommend switching suppliers when you’re on prepay but your options will be limited.
- Standard variable tariff - prepayment meters usually offer just standard tariffs which are almost always the most expensive option.
- Higher rate - prepayment meters charge a higher rate per unit of gas and electricity.
Some energy suppliers are trying to offer better options to prepayment customers. However, if you can, switching to a standard meter would be a wise choice.
Prepayment meters vs. standard gas and electricity meters
Thinking of changing to a standard energy meter? Standard meters offer more flexibility to choose between many different tariffs and suppliers. Prepayment meters are much more limiting and costly.
Let’s take a look at the pros and cons of prepayment energy meters:
Pros
- Stay in control - you buy your energy before you use it, so you can be in charge of how much you pay and how often you top-up.
- Don’t overpay - you can’t receive any energy bills based on estimated readings as you pay in advance. This means that you’ll never overpay for energy you haven’t used.
- Avoid unexpected bills - you can’t be surprised by any expensive unexpected bills when you prepay for gas and electricity.
- Can’t go into debt - you’ll never go into debt with your energy supplier on prepayment meters.
Cons
- Expensive - prepayment meters usually charge more per unit of gas and electricity than standard meters do.
- Inconvenient - if you run out of energy late at night and you need to top-up your meter, you won’t be able to if the shops are shut. Some suppliers are now allowing app or online top-ups though.
- Lose energy - if you run out of credit on your prepayment meter and can’t top it up, you’ll lose gas and electricity, leaving you home without power.
- Limited deals - the best cheapest tariffs aren’t available to those with prepayment meters, making it more expensive.
- Can’t spread the cost - standard meters spread the cost of your energy evenly throughout the year with a direct debit. You can’t do this with prepayment meters as you must pay for your energy before you use it. This means that you’ll be paying significantly more in the winter which might be difficult.
Standard energy meters are much more convenient and affordable than prepayment meters. So, how do you switch?
Can I switch from a prepayment meter to a standard credit meter?
You can switch from a prepayment meter to a standard one but there are some checks you’ll have to pass first. Usually, prepayment meters have been given to those with bad credit or who were in debt to their supplier.
This means that you’ll usually have to pass a credit check and not be in debt to any energy supplier before you can switch to a standard meter.
British Gas, E.on, EDF, Npower, Scottish Power and SSE don’t charge you to switch meters. Some smaller energy suppliers might charge you a fee for the new meter.
Why can’t I switch from prepaid energy?
If you have a bad credit score or still owe your current energy supplier money, you might not be able to switch to a standard meter.
You’ll need to focus on clearing any debt and improving your credit score. You can always ask your supplier why you can’t switch and for any tips or advice to get accepted next time.
Can I switch to a cheaper prepayment tariff?
Yes, you can switch energy suppliers on a prepayment meter just like you can with standard meters. Almost every energy supplier offers at least one prepayment tariff and some will have better deals than others.
If you can’t switch to a standard meter, definitely shop around to find the best prepayment deal. Use a comparison site to find the cheapest prepayment tariff and you should be able to save some money.
Once you switch suppliers, you’ll be sent a new card or key to top-up your prepayment meter with.
How to switch from a prepayment meter to a standard credit meter
Switching from a prepayment meter to a credit meter is straightforward but there are some hurdles you’ll need to jump during the process.
Step 1: Get in touch with your energy supplier
Give your current energy supplier a call and ask if you’re eligible for a standard meter.
Step 2: Pass a credit check
Most energy suppliers will run a credit check when you ask to switch from a prepayment meter. This is to make sure that you can keep up with paying bills. If you have a poor credit score, you might be rejected and you’ll have to improve your score before you can switch.
You’ll also need to have paid off any debt you might owe to your current supplier or you won’t be able to switch.
Step 3: Have your new meter installed
If you pass the checks, your supplier will arrange for an engineer to remove your prepayment meter and replace it with a new standard credit meter.
If you’re with one of the Big Six (British Gas, E.on, EDF, Npower, Scottish Power and SSE) then you won’t have to pay a fee to switch to a standard meter. Some other suppliers might charge.
Step 4: Switch energy supplier
Once you’ve switched and got your standard meter installed, an abundance of new, cheaper tariffs will be available to you!
Compare and switch energy suppliers to the cheaper tariff available to you - it could be up to £200 cheaper than your old prepayment tariff.
Remember these two things about standard energy meters:
- Tariff price differences - you’ll be put on the most expensive standard tariff when you switch meters. Make sure you check a comparison site for a cheaper deal right away or you could be paying more than you were on a prepayment meter.
- Go paperless and pay via direct debit - the cheapest energy deals are made even cheaper if you opt for paperless billing and direct debit payment.
How to switch from a prepayment meter as a tenant
If you’re a tenant and you wish to switch from a prepayment meter to a billed meter, you’ll need your landlord’s permission first. Changing energy meters is considered a change for the property which you shouldn’t do without the landlord’s consent.
If your landlord agrees, then you can get in touch with your energy supplier to start the switching process, which is the same as above.
Can my landlord say no to a billed meter?
Your landlord can say no to your request to switch from a prepayment meter to a standard billed meter. They might not agree as a prepayment meter offers extra protection in the event of tenants vacating the property with unpaid bills.
If your landlord says no, don’t despair! You can still switch to a cheaper prepayment tariff or supplier and save some money. Again, let your landlord know before you switch suppliers.
You don’t need permission to switch energy suppliers but some tenancy agreements might say that you can’t switch. You can argue this as an unfair clause. Ofgem states that “tenants who directly pay for their energy have the right to switch supplier.”
However, if bills are included with the rent and the energy isn’t in your name, then your landlord can refuse to switch energy suppliers.
Prepayment meter golden rules
If you’re unable to switch from a prepayment meter then make sure you’re prepaying for energy the right way by following our golden rules…
Rule #1: Use less energy
The easiest way to save money on prepaid is to simply use less energy so you’ll have to top up your meter less often. Here are some quick ways to reduce your energy usage:
- Turn off lights in rooms you aren’t using.
- Put on a jumper before turning up the heating.
- Only run the dishwasher and washing machine when full.
- Install draught excluders.
Read our guide on reducing energy bills for more tips on saving energy!
Rule #2: Only use emergency credit when you really need to
Most energy suppliers will provide £5-£10 emergency credit after your top-up credit runs out. However, you’ll have to pay this credit back as well as the standing charge when you next top-up. When you use emergency credit you aren’t paying the standing charge which is a daily rate just to be connected to gas and electricity.
Your budgeting might be thrown as you’ll have to pay for the emergency credit and standing charges when you next top-up.
Rule #3: Don’t forget to top-up your meter before you go on holiday
Before you go away, make sure you have enough credit on your prepayment meter to cover some energy usage. Otherwise, you might find that all your appliances switch off whilst you’re out - think about all the food waste in your fridge and freezer!
Rule #4: If you move into a property with a prepayment meter - contact the supplier!
If you find that there’s a prepayment meter installed when you move into a property, contact your energy supplier right away to let them know that you’ve moved in.
Also, don’t use the previous tenant/owner’s top-up card/key. You could end up paying their debt which you don’t want. The supplier must reset the meter as soon as possible.
Rule #5: Don’t lose your payment card or key
If you lose your top-up key/card you’ll be charged for a replacement. This can be around £10 so keep it safe!
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