Prepayment meters and pay as you go energy explained

A prepayment meter with several pound coins in the background (images: Getty Images)

In this guide we take a look at how prepayment meters work, the advantages and disadvantages of pay as you go tariffs, and how to switch to a credit meter.

Four million households in the UK currently use prepay meters, according to the energy regulator Ofgem. If you do an energy comparison, you’ll find these usually don’t offer the most competitive deals on the market. Nor do they give you much choice when it comes to energy tariffs.

There has also been a great deal of controversy around pay as you go in light of the force-fitting scandal in early 2023. Ofgem has recently allowed three suppliers to resume the practice. But PAYG meters can be a useful option if you’re on a tight budget and need direct control over your outgoings.

For many households, budgeting is likely to have become even more of an issue. Energy bills leapt 5% at the start of January 2024 due to the new Ofgem energy price cap. If you’re struggling to pay for gas and electricity, we have everything you need to know in our guide to all the available help with your energy bills.

What is a prepayment meter?

Prepayment meters – also known as pay-as-you-go meters – are a type of energy meter that require the user to pay for their energy before using it.

You can add credit to your meter through a smartphone app, if you have a smart prepay meter. Payment also can be done via a key, token or smartcard that can be topped up at supermarkets, corner shops, Post Offices and a variety of other places. You then insert the key or card back into your meter, where it will update your balance.

The meter will then use up this credit until it runs out, at which point it may add a small emergency amount of cash before your energy supply is shut off. Naturally, the more energy you use, the quicker the credit goes. See our energy saving tips guide to see ways to save money by cutting how much you use.

Prepayment meter advantages

Using a prepayment meter to pay for your gas and electricity in advance has several benefits:

  • You control how much and how often you pay for your energy.
  • Standard prepay prices under the energy price cap are now slightly cheaper than direct debit.
  • Helps prevent running up large and unexpected bills.
  • Helps you avoid running into debt with your energy supplier.
  • If you’ve fallen into debt, it helps you pay back the outstanding balance in agreed amounts over a set period of time (there is now more scrutiny than ever on suppliers to treat prepay customers more fairly).

Prepayment meter disadvantages

  • Topping up at your local shop or newsagent can be inconvenient if you don’t have a smart prepay meter.
  • The cheapest fixed deals are usually for standard direct debit customers, so you may not have many options to choose from (see how to do an energy comparison).
  • If you can’t get out to top up your meter, your energy may be switched off, leaving you without any power.
  • If you forget to top up your meter before you leave the house for a few days or go on holiday, you may come back to a melting freezer because the power has switched off (even if you use no energy, the daily standing charge will be eating away at your credit).

Are prepayment meters more expensive than direct debits?

With prepayment meters, you pay for energy before you use it. So, it can help with budgeting and you are more aware of exactly what you are spending. 

Traditionally, prepay was more expensive than direct debit for those on standard tariffs that follow the price cap (most of us right now). But the Government has taken steps to ensure that’s no longer the case.

If you’re on a standard prepay tariff, live in an average-sized home and your energy use is roughly the UK average, you’d currently pay around £1,920 a year under the January to March 2024 price cap. If you pay via direct debit on a standard meter, it’s £1,928 annually for a typical household.

The prepay price cap figure includes a government subsidy that’s been put in place to ensure those on prepay no longer pay a premium. This will be in effect until 31 March 2024, although Ofgem is consulting on whether to make it permanent.

If you're on an older prepayment meter, see if you can get a smart meter

The majority of energy firms now offer smart prepayment meters for free and they can make things a lot easier. They come with an in-home display which shows you exactly how much energy your home is using in pounds and pence that updates almost in real-time.

It means you can track what you use and understand where you can make reductions in your energy use to help save money. They also make it a lot easier to top up as you can do it online, via an app, by text or over the phone, meaning there’s no need to head out to the local shop to top up.

The other great thing is that if you’re eligible, you can easily switch to a credit tariff. A smart meter can be switched between prepay mode and credit mode remotely, so your supplier will not need to fit a new meter in your home. See smart meters explained for more info.

smart meter

How do I switch from a prepayment meter to a standard credit meter?

If you want to switch meters, you’ll need to ensure your energy account is debt-free. Suppliers will also usually run a credit check to make sure they can trust you to pay your direct debits on time each month.

Most major energy firms will let you switch from a prepayment meter to a standard credit meter for free – although some smaller suppliers charge a fee. So, it’s worth checking before you start the process.

If and when switching becomes more competitive and starts to really challenge the rate of the Ofgem price cap, it’s likely to be worth switching meter. Also, if you’re looking for a particular type of deal, such as an EV tariff, you could save £100s by opting for a credit meter. You can find the best gas and electricity deals in our handy guide.

If you’re renting, you should get permission from your landlord before switching from a prepayment meter to a standard credit meter. But you don’t need permission to switch tariff.

Can I change energy supplier if I have a prepayment meter?

You can switch energy supplier if you have a prepayment meter in your home. But, if you’d like to do an energy comparison and switch to the most competitive tariffs, you’ll also need to change your prepayment meter to a credit meter.

What happens if I run out of credit?

Prepayment meters have a reputation for quite literally leaving people in the dark when they run out. But most modern versions come with emergency credit – a small, set amount of credit you can run into when what you’ve put in runs out.

This is typically around £5 for electricity and £10 for gas. After all your emergency credit is used up, the word DEBT will show on your meter, along with other information such as your outstanding balance.

Your meter may also feature a ‘no disconnect’ mode to ensure you aren’t cut off at times when you simply can’t add more credit. Your local PayPoint, Payzone and Post Office are probably shut in the middle of the night, for example, so it would be unfair to expect you to top up when that’s literally impossible.

Say you run out of temporary credit, it’s worth ringing your supplier. If they class you as a vulnerable person (eg, you’re at or above state pension age), or your circumstances are such that they believe you need extra support, they may be able to forward you additional credit or give you a grant through their hardship scheme.

Reading your meter is fairly simple. You usually have to press a button on it (which tends to be blue). This should change the display from showing the remaining credit on your meter to showing the actual reading – from here it’s just like taking a normal meter reading.

What is force-fitting - and why is it controversial?

Force-fitting is when an energy supplier puts a prepayment meter into someone’s home without their permission. They will do this if a customer falls behind on their payments and doesn’t engage with them.

This practice hit the headlines in February 2023. The Times found debt agents acting on behalf of British Gas were breaking into vulnerable customers’ homes to force-fit prepayment meters. It led to a temporary ban on the practice.

In September 2023, Ofgem drew up a new force-fitting code of practice for suppliers. It set out specific actions providers have to take before they can forcibly install a PAYG meter, and also banned them from doing it to certain groups of customers (eg, households containing young children).

In January 2024, Ofgem announced three suppliers would be allowed to resume force-fitting. To get approval to restart the practice, they had to meet “strict” criteria and must continuously share data with Ofgem, the regulator said.