What is a prepaid meter?

A prepaid meter, also known as a prepayment or pay-as-you-go meter, requires you to pay for your energy before you use it. Instead of receiving a bill after consuming electricity or gas, you top up the meter with credit, and the meter supplies energy until that credit runs out. This system is designed to help households manage their energy spending by providing immediate control over their budget.

Understanding how to manage your energy costs is key, and while prepayment meters offer one way, there are often more flexible options available. Discover how to take control of your energy with Fuse Energy's modern approach. Click here to get started.

Understanding prepayment meters

What is a prepayment meter?

A prepayment meter operates on a pay-as-you-go basis, much like a pay-as-you-go mobile phone. You purchase credit, and as you use electricity or gas, the meter deducts the cost from your balance. Once the credit is depleted, the energy supply will typically stop until you top up again. Around 4 million households in the UK use a prepayment meter for their gas and/or electricity.

How do pay-as-you-go meters work?

To use a pay-as-you-go meter, you typically receive a special key or card from your energy supplier. You take this key or card to a designated top-up point, such as a PayPoint or PayZone outlet, or a Post Office, where you add money to it. Once topped up, you insert the key or card into your meter at home, transferring the credit. The meter then displays your remaining balance, which decreases as you consume energy. Modern smart prepayment meters offer additional convenience, allowing top-ups via phone, app, or online.

Types of prepayment meters

There are two main types of prepayment meters:

• Traditional prepayment meters: These typically use a physical key or card that you take to a shop to top up. The credit is then manually transferred to the meter.
• Smart prepayment meters: These meters offer more advanced features. While you can still top up in a shop using a barcode or top-up card, smart prepayment meters also allow you to add credit remotely via an app, online account, or over the phone. They often come with an in-home display that shows your energy usage and remaining balance in real-time.

Advantages and disadvantages of prepayment meters

The benefits of pay-as-you-go energy

Prepayment meters offer a clear way to manage energy spending, as you only use the energy you have paid for. This can be particularly helpful for budgeting, preventing unexpected large bills, and avoiding debt accumulation. For those repaying energy debt, suppliers can set up prepayment meters to deduct a fixed amount towards the debt with each top-up.

The drawbacks: why prepayment meters can be costly

Historically, prepayment meters have been associated with higher unit rates and standing charges compared to credit meters, leading to a "prepayment premium". While recent government interventions and Ofgem's price cap have aimed to align prepayment tariffs more closely with Direct Debit tariffs, making them comparable or even slightly cheaper for standard variable tariffs, prepayment customers still face limitations. They often have fewer tariff options, with limited access to competitive fixed-rate deals or dynamic tariffs that are available to credit meter customers.

Another significant drawback is the inability to spread energy costs evenly across the year. Prepayment users typically pay more in winter when energy consumption is higher, which can make budgeting challenging.

Risk of self-disconnection and emergency credit

One of the most significant concerns with prepayment meters is the risk of self-disconnection, which occurs when a customer runs out of credit and their energy supply cuts off. This can have serious consequences, particularly for vulnerable individuals, including those with health conditions or young children.

To mitigate this, energy suppliers are required to offer emergency credit if you cannot afford to top up. This is usually £10 per fuel. Additionally, "friendly credit" hours are typically available during evenings, weekends, and bank holidays, preventing disconnection when top-up points might be closed. Any emergency or friendly credit used must be repaid on your next top-up.

Ofgem regulates energy suppliers to ensure fair treatment of prepayment meter customers, including rules on emergency credit and support for vulnerable individuals. Suppliers must follow strict guidelines before installing a prepayment meter, especially for vulnerable households.

Managing your prepayment meter

How to top up your meter

Topping up your prepayment meter depends on its type:

• Traditional meters: You will use a key or card at a PayPoint, PayZone, or Post Office.
• Smart prepayment meters: These offer more flexibility. You can still top up in person, but you can also do so online, through your energy supplier's app, or over the phone.

It is advisable to know the locations and opening times of your nearest top-up points and to top up with extra credit before bank holidays or periods when it might be difficult to access these services.

Monitoring your energy usage and balance

Regularly checking your meter's display is crucial to avoid running out of credit. Most prepayment meters show your remaining balance, and smart meters provide more detailed usage insights through an in-home display or app. This allows you to see how quickly your credit is being used and adjust your consumption if needed. You can also learn more about how to read your energy meter to keep track of your usage.

What to do if you run out of credit

If your credit runs out, your first step should be to activate any available emergency credit. If you have used that, or if it is during friendly credit hours, your supply may continue temporarily.

If you are struggling to top up or are at risk of self-disconnection, contact your energy supplier immediately. They are required to offer support, including additional support credit for vulnerable customers and help in setting up affordable payment plans. Citizens Advice can also provide guidance and support if you are having difficulties.

Switching from a prepayment meter

Eligibility for a credit meter

Switching from a prepayment meter to a credit meter, which allows you to pay for energy after you have used it, is often possible. Energy suppliers typically require you to clear any outstanding debt on your account. However, under the Debt Assignment Protocol (DAP), a prepayment customer can switch suppliers if their debt is up to £500 per fuel (i.e. up to £500 on electricity and up to £500 on gas, assessed separately). The new supplier may agree to take on this debt as part of the switch, but they are not obliged to accept it. Most suppliers will also conduct a credit check to assess your suitability for a credit meter and a Direct Debit payment plan. If you have a health condition or disability that makes managing a prepayment meter difficult, you may also be eligible to switch.

The process of switching to a smart meter

If you have a non-smart prepayment meter, your energy supplier may offer to replace it with a smart meter for free. Smart meters can operate in both prepayment and credit modes, meaning your supplier can often switch your meter remotely from prepayment to credit mode without needing a home visit. This makes the transition smoother and quicker. You can find more information on smart meter installation if you are considering an upgrade.

Finding better tariffs and greater control

Moving to a credit meter, especially a smart meter in credit mode, can unlock a wider range of tariffs and offer greater control over your energy. Credit meters typically provide access to more competitive fixed-rate deals and flexible tariffs that allow you to spread costs evenly throughout the year. This can lead to more predictable bills and potentially lower overall energy costs.

The average UK home uses around 2,500 kWh of electricity and 9,500 kWh of gas per year1. Managing this consumption effectively is easier with the flexibility that credit meters and smart meters provide. Understanding your energy bill can also help you take control of your usage and costs.

Modern energy management with Fuse Energy

Why credit meters and smart meters offer more flexibility

Prepayment meters, while offering immediate budgeting control, can limit your ability to manage energy costs effectively in the long term. The need for constant topping up, fewer tariff options, and the risk of self-disconnection restrict your "power to play with" your energy. Credit meters, especially when paired with smart meter technology, offer significantly more flexibility. They allow you to access a broader range of tariffs, spread your payments, and avoid the stress of running out of credit.

Gaining control with the Fuse Energy app

Fuse Energy believes in empowering customers with better energy options. Our digital-first approach and app are designed to give you real-time control and transparency over your energy usage and costs. Unlike traditional prepayment systems, a smart meter in credit mode, managed through an intuitive app, provides detailed insights into your consumption, helping you make informed decisions and optimise your energy use. This level of transparency and control is often lacking with traditional prepayment systems.

Moving beyond the limitations of prepayment

Fuse Energy supports smart prepayment meters for switching, and these meters are reverted to credit mode during the switch. We encourage customers to move to smart meters in credit mode for a more empowering energy experience. By moving beyond the limitations of traditional prepayment, you can gain greater control over your energy budget, access more flexible tariffs, and benefit from the advanced features of modern smart meters. This aligns with our belief that you should never settle for less control or potentially higher costs when superior alternatives are available.

Managing your energy should be simple and transparent. Fuse Energy offers clear pricing, real-time usage data through our app, and 24/7 human customer support to help you make the most of your energy. Switching to Fuse is quick and easy, allowing you to take control of your energy bills and enjoy a modern energy experience. Click here to switch to Fuse Energy today. To learn more about our mission to make energy abundant and affordable, click here.

References

1. Ofgem. Review of Typical Domestic Consumption Values