Prepaid energy meters: how they work

A prepaid energy meter, also known as a prepayment or pay-as-you-go (PAYG) meter, requires you to pay for your gas and electricity before you use it. This system works much like a pay-as-you-go mobile phone, where you top up credit onto a key, card, or via an app, and the meter then supplies energy until that credit runs out. More than four million households in Great Britain use prepayment meters for their energy supply.

This article explains the mechanics and challenges of prepaid meters, then highlights how a smart meter-centric approach can offer a more flexible and empowering alternative for managing your home's energy.

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What is a prepaid energy meter?

A prepaid energy meter allows you to manage your energy consumption by paying for it in advance. Instead of receiving a bill for energy already used, you purchase credit, and the meter draws from this balance as you consume electricity or gas. This can be a useful tool for budgeting and avoiding unexpected bills.

Defining pay-as-you-go energy

Pay-as-you-go energy means you only use the energy you have already paid for. This method gives you direct control over your spending, as you can see your balance decrease in real-time as you use energy. If your credit runs out, the energy supply will typically stop until you top up again.

Key components of a prepayment meter

Traditional prepayment meters usually involve a physical key or card that you take to a shop to add credit. This key or card contains a unique code linked to your meter. Modern smart prepayment meters, however, often allow for digital top-ups via an app or online portal, removing the need for a physical token. Both types of meters display your remaining credit and may show details of daily standing charges or any energy debt.

How do prepayment meters work?

Prepayment meters function by deducting the cost of your energy usage from the credit you have loaded onto them. This includes both the unit rate for the energy consumed and a daily standing charge.

Topping up your meter

Topping up a traditional prepayment meter involves taking your gas card or electricity key to a designated top-up point, such as a PayPoint, Payzone outlet, or Post Office. You tell the assistant how much credit you want to add, and the amount is loaded onto your key or card. When you insert this back into your meter at home, the credit is transferred.

Smart prepayment meters offer more flexibility, allowing you to top up remotely via your energy supplier's app, online portal, or by phone. Credit added this way is typically applied to your meter automatically, often within minutes.

Understanding emergency credit and friendly hours

Emergency credit is a small amount of temporary credit provided by suppliers to prevent immediate self-disconnection when your regular credit runs out. It is designed to give you breathing space until you can next top up. The amount of emergency credit can vary between suppliers, but it usually needs to be repaid from your next top-up.

Friendly hours (also known as 'non-disconnection hours') are specific periods when your electricity supply will not cut off, even if you run out of credit. These typically cover evenings, weekends, and Bank Holidays when it might be difficult to top up. If you use energy during friendly hours, the cost is added as debt to your meter and deducted from your next top-up. While many electricity meters offer friendly hours, traditional gas prepayment meters often do not.

Reading your prepayment meter

Your prepayment meter will have a digital display that shows your remaining credit. Smart prepayment meters often come with an in-home display that provides real-time information on your energy usage and remaining balance, helping you monitor consumption more effectively.

Benefits of using a prepayment meter

Prepayment meters offer certain advantages, particularly for those looking to manage their household finances closely.

Budgeting and financial control

Paying for energy upfront can help you keep a tight rein on your spending. By topping up as you go, you can avoid accumulating large, unexpected bills and only pay for the energy you can afford at that moment. This can be especially useful for budgeting if you have a variable income.

Avoiding unexpected bills

With a prepayment meter, you do not receive estimated bills that could lead to a large payment demand later. Since you pay for energy before you use it, there are no surprises at the end of the month, which can provide peace of mind for some households.

Drawbacks and challenges of prepayment meters

Despite the budgeting benefits, prepayment meters come with several significant drawbacks that can make energy more expensive and less convenient.

Higher costs and standing charges

Historically, prepayment meter customers have often paid higher unit rates and standing charges compared to those who pay by Direct Debit. While recent interventions by Ofgem and the government have aimed to reduce this "prepayment premium" and align costs more closely with Direct Debit tariffs under the energy price cap, some differences can still exist. Prepayment users may also have fewer tariff choices, limiting access to cheaper deals.

The standing charge is a fixed daily fee you pay regardless of how much energy you use. If you do not have credit on your prepayment meter, this charge can still accrue as debt, which is then deducted from your next top-up.

Risk of self-disconnection

A major concern with prepayment meters is the risk of running out of credit and experiencing self-disconnection, meaning your energy supply cuts off. This can be particularly inconvenient and distressing, especially during unsocial hours, cold weather, or if you rely on electricity for medical equipment. Citizens Advice reported that 3.2 million people across Great Britain ran out of credit on their prepayment meter in 2022 because they could not afford to top up. Although emergency credit and friendly hours exist, they are temporary solutions, and the debt still needs to be repaid.

Ofgem has introduced strict rules to protect vulnerable customers from involuntary prepayment meter installations, including requirements for suppliers to make multiple contact attempts and carry out welfare visits. Certain high-risk households, such as those dependent on powered medical equipment or with children under two, are exempt from involuntary installations.

Inconvenience of topping up

For traditional prepayment meters, needing to physically visit a shop to top up can be inconvenient, especially if outlets are far away, closed, or if you have mobility issues. Losing your key or card can also lead to temporary disruption while you wait for a replacement. While smart prepayment meters address this by allowing remote top-ups, not all households have them.

Managing debt on your meter

If you owe money to your energy supplier, this debt can be loaded onto your prepayment meter. A portion of each top-up you make will then go towards repaying this debt, alongside paying for your current energy usage. If you struggle to afford these repayments, you should contact your supplier to discuss a more affordable plan. You can typically switch suppliers with up to £500 of debt per fuel (gas and electricity) through the Debt Assignment Protocol, where your new supplier may agree to take on the debt. Grants, such as the British Gas Energy Trust's Individuals and Families Fund, can also help clear energy debts for prepayment meter customers, regardless of their supplier.

Prepayment meters vs smart meters

The landscape of energy meters is evolving, with smart meters offering a modern alternative to traditional prepayment systems.

Traditional prepayment vs smart pay-as-you-go

Traditional prepayment meters require manual top-ups using a physical key or card, and offer limited real-time usage data. In contrast, smart meters, even when set to pay-as-you-go mode, provide a more advanced experience. They allow for remote top-ups via apps or online portals, eliminating the need to visit a shop. Smart meters also come with an in-home display, offering near real-time insights into your energy consumption. This transparency can help you understand and manage your energy use more effectively.

Enhanced control and flexibility with smart meters

Modern smart meters offer significant advantages over older prepayment systems. They provide detailed usage data, often accessible through a smartphone app, which empowers you to make informed decisions about your energy consumption. This level of control can help you identify high-usage periods and appliances, leading to more efficient energy management.

Unlike traditional prepayment meters, smart meters can often be switched between prepayment and credit (Direct Debit) modes remotely by your supplier, offering greater flexibility without needing an engineer visit. This means you can potentially access a wider range of tariffs and payment options that might be more cost-effective in the long run. Fuse Energy's smart meter-centric approach champions this flexibility and transparency, offering customers greater control and peace of mind by moving away from the restrictive nature of traditional prepayment.

Switching from a prepayment meter

If a prepayment meter no longer suits your needs, it is possible to switch to a different payment method or supplier.

Eligibility for switching

You can switch energy suppliers even if you have a prepayment meter. Most suppliers will allow you to move from a prepayment meter to a standard credit meter for free, often by replacing your old meter with a smart meter. If you have a smart prepayment meter, it can often be switched remotely to credit mode.

However, if you have energy debt on your prepayment meter, this might affect your ability to switch. You can typically switch suppliers with up to £500 of debt per fuel (gas and electricity) through the Debt Assignment Protocol, where your new supplier may agree to take on the debt. If you owe more than this, you would usually need to clear the debt first. Your supplier must also reassess your case once any debts are repaid and agree to move you off a prepayment meter if you pass a credit check.

The process of changing your meter or supplier

To move away from a prepayment meter, you should contact your current energy supplier. They can advise on your eligibility to switch to a credit meter, which may involve a credit check. If eligible, they will arrange for your meter to be changed or, if you have a smart prepayment meter, switch it to credit mode remotely.

Once you are on a credit meter, you can then choose from a wider range of tariffs, including those paid by Direct Debit, which may offer lower unit rates and standing charges. The average UK home uses around 2,500 kWh of electricity and 9,500 kWh of gas per year1. Understanding your consumption can help you choose the most suitable tariff for your needs.

Fuse Energy does not support traditional prepayment meters for switching. Instead, we focus on smart meter solutions that offer greater flexibility, transparency, and control over your energy usage. If you have a manual meter, you can switch to Fuse on a standard tariff and are eligible for a free smart meter upgrade after switching in.

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