Why does the price per unit of energy cost more for prepayment meters?

mynameisboba

I understand that they’re commonly used for people with previous debt issues or tenants, but why does it cost more to pay in advance than those who pay on credit / DD?

MWT

Mostly the cost of processing the payments, which tend to be smaller and more frequent and handled by 3rd parties to make the location convenient.

All that comes at extra cost.

Gerry1

EDF's PAYG kWh rates are often cheaper than their Direct Debit rates.

Bark01

The main driver is the 3rd party payment systems for people who still uses keys/cards. This is somewhat going away under the move to smart as the energy companies can now handle the payments themselves removing the need for the 3rd party systems.

Which is why as Gerry as points out we are starting to see Smart payment price drop to below to DD.

jrawle

I can understand when energy prices were set commercially why suppliers would charge more to cover the additional costs. However, now prices are subject to a cap set by the government, I do find it distasteful that people who have no choice other than to be on a prepayment meter are charged more. It's not justifiable; this cost should be absorbed by all customers (just as SOLR costs, etc. are). I speak as someone who has never been on a prepayment meter.

MattMattMattUK

jrawle said:

I can understand when energy prices were set commercially why suppliers would charge more to cover the additional costs. However, now prices are subject to a cap set by the government, I do find it distasteful that people who have no choice other than to be on a prepayment meter are charged more. It's not justifiable; this cost should be absorbed by all customers (just as SOLR costs, etc. are). I speak as someone who has never been on a prepayment meter.

It is justifiable by the increased cost of collecting the funds. Not every cost should be socialised. 

Ultrasonic

jrawle said:

I can understand when energy prices were set commercially why suppliers would charge more to cover the additional costs. However, now prices are subject to a cap set by the government, I do find it distasteful that people who have no choice other than to be on a prepayment meter are charged more. It's not justifiable; this cost should be absorbed by all customers (just as SOLR costs, etc. are). I speak as someone who has never been on a prepayment meter.

The cap isn't arbitrary though but rather is designed with costs to suppliers in mind. As such it doesn't seem unreasonable that the caps reflect the additional costs associated with the use of pre-payment meters.

bristolleedsfan

Bark01 said:

Which is why as Gerry as points out we are starting to see Smart payment price drop to below to DD.

Nothing to do with Smart payment, kwh unit price of key and card prepayment is cheaper than DD albeit has slightly higher electricity standing charge and much higher gas standing charge

Gerry1

Ultrasonic said:

jrawle said:

I can understand when energy prices were set commercially why suppliers would charge more to cover the additional costs. However, now prices are subject to a cap set by the government, I do find it distasteful that people who have no choice other than to be on a prepayment meter are charged more. It's not justifiable; this cost should be absorbed by all customers (just as SOLR costs, etc. are). I speak as someone who has never been on a prepayment meter.

it doesn't seem unreasonable that the caps reflect the additional costs associated with the use of pre-payment meters.

Are there any significant costs associated with modern pre-payment meters?  If so, presumably they do not vary with kWh usage, so that would rule out higher kWh rates.

Apart from standing charges and a very limited amount of emergency credit, the supplier is not at risk from bad debts the way that they are with Direct Debit customers who can owe hundreds or even thousands of pounds if they scarper.  Quite apart from the social justice considerations of penalising vulnerable users who are desperately trying to avoid debt, it seems the justification for charging extra started to wane when cash PAYG meters were phased out, and has now completely disappeared with key and smart meters.

Indeed, it could even be argued that consumers with smart meters set to DD should be charged a nominal premium to reflect the higher risk of bad debt compared to those with exactly the same smart meter set to PAYG !

savers_united

To be fair It's not just energy though, the same applies to PAYG mobile phones, paying TV license quarterly rather than DD, 6mths Road tax instead of 12mths. Businesses seem prefer a regular fixed cash flow each month and DD is the cheapest way for them to do B2C

jrawle

I should point out that when I say the higher cost on prepayment is not justifiable, I am referring specifically to the government determined price cap (on which suppliers are possibly losing money anyway and try to avoid taking on new customers at these prices). It's as if it's a state mandated penalty applied to people with poor credit ratings.

I am not disagreeing with businesses in general covering their costs. I just feel there should be one government-capped price for energy, and if suppliers then want to apply a discount for DD that's up to them.