Industry News James Wood 16/09/2022

The energy price cap - what you need to know

The Government has announced the 80% rise in energy prices for consumers will not go ahead as planned on October 1.

Prices are still set to rise, nearly doubling from last winter.  However, this new price cap will be significantly lower than the original one set by Ofgem, which was set to cost an average household £3,500 per year.

While the full details on this price cap have yet to be announced, there is some important information available that will help landlords and tenants prepare.

What will the new price cap be?

The new price cap is set at a maximum of –

  • 34p per kWh for electricity for the unit charge and 46.4p per day for the standing charge.
  • 10.3p per kWh for gas and 28.5p per day for the standing charge.

These are significant reductions on the planned price cap where electricity was set to be capped at 51.89p per kWh and gas was originally set to go up to 14p per kWh.

How long will the price cap be in place for?

The new price cap will be in place until October 2024.

Will the £400 rebate still be paid from October?

Yes. The £400 rebate announced by Rishi Sunak will still be paid in six monthly instalments from October. Similarly, the targeted support available for the most vulnerable tenants will still be made available to help with their bills.

Where is the £2,500 figure in the media coming from?

It is important to note that the £2500 annual figure bandied about in the media is an average price for an average household. It does not mean that bills are capped at £2,500 regardless of how much energy is used.

As a result, it may be helpful to get in touch with your tenants to discuss their concerns about energy bills and discuss ways in which they may be able to reduce their energy usage, or claim any additional support they might be entitled to.

I fixed my contract before the new price cap. How does this affect my contract?

Though details aren’t completely clear on this yet, the understanding is that fixed rates will automatically be reduced to the new cap from 1 October if they are higher.

For those who fixed earlier, when rates were significantly lower, your fixed rate will remain unchanged until the fixed term expires.

My HMO is on a commercial energy supply. Am I entitled to any energy savings?

Unfortunately, while the Government has promised similar support for six months for those on commercial rates, the details on this have been delayed and will not come until after 1 October. It has been confirmed that support will be backdated however.

Where you are acting as an energy ‘reseller’ this may present problems if the support is backdated as it may mean you are charging more to your tenants than you eventually end up paying. You are prohibited from making a profit by reselling the energy, so it may be sensible to wait until the support has been finalised before billing tenants in October.

My properties have bills included in the rent, and I have already increased rents to account for the original price cap. What should I do?

Government guidance says that landlords are encouraged to pass on the savings from this new cap to their tenants. This would typically be in the form of a rent reduction.

However, in most cases, landlords will not have raised rents in line with the original price cap. Instead they are absorbing the increased costs of energy that have built up since last winter. In cases like this, it would be useful to contact your tenants and explain how the latest rent rise was calculated.

It should be noted that the Government guidance suggests that legislation may follow on this. If so, this guidance may change. We will provide more details as and when it appears.

James Wood

James Wood Head of Policy

James Wood, LLB, is the NRLA’s Head of Policy. James has provided legally sound advice to thousands of landlords for more than six years, along with producing the organisation’s guides and documents and training the organisation’s highly rated advice service.

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