Switch2 Blog

Pay as You Go Energy - Is It the Future for Community Heating?

Posted by Kirsty Lambert on 29-Jan-2015 10:00:00

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Find out how pay as you go meters can end the customer debt headache for big, small, new or established housing schemes.

 

Community heating schemes in the UK often struggle to recover the cost of consumer heating. Fundamentally, housing managers have two options when setting up ways to pay for the heat consumed:

  1. Credit payment, whereby consumers pay for energy already consumed every month.
  2. On prepayment terms, often called pay as you go (PAYG) energy.

Community heating schemes often include a combination of credit paying consumers and those who pay for their heat under PAYG.

 

Overcoming a bad reputation

Pay as you go energy is commonly viewed as a debt management device for housing operators. From the residents’ side, it has associations with poverty and shades of questionable financial responsibility. But as well as assisting housing professionals to manage consumer debt, PAYG can help residents to manage their budget to avoid debt. There have, however, long been obstacles to fully realising the benefits of PAYG for residents and managers.

PAYG conventionally requires a point-of-sale retail outlet for payment tokens or card charging which, in small developments, has not been cost effective. While prepayment has long been viewed as a way to remove debt from community heating schemes, it can merely transfer the debt risk from residents to the retail outlet.

 

Smarter systems

Connected wireless technology has brought in PAYG systems that are not burdened with the hardware limitations of tokens, card prepayment and the need for a retail outlet. These advanced systems have helped shake off the unconstructive social implications of pay as you go energy given their associations with mobile communications and energy conservation. A new study found that nearly half of UK power consumers would like to use a smart PAYG meter for their gas and electricity, with 60 percent of 18-34 year olds interested in using smart meters.

Residents can top-up their heat by direct debit, via online payment channels, or over the telephone. Some of the more innovative attributes in modern pay as you go systems for energy, including tariff switching, can be used to support vulnerable residents by monitoring their spend and consumption patterns.

So advances in PAYG can end the commonplace financial headaches for housing managers who, under existing conventions, are left with the task of dealing with consumer debt. That arises from the housing association’s role as underwriter of consumer credit risk and leaves their managers seeking to provide affordable warmth while covering their costs.

 

Better budgeting

As well as broadening access to the debt management benefits of PAYG to all sizes of housing, advanced systems can aid residents in avoiding the fall into debt and protect low-income and other vulnerable groups to aid social housing schemes.

Smart, wireless connected PAYG systems provide accurate real-time billing to do away with estimates. In doing so they help significantly in removing the risk of consumer debt in community energy. They end the need for sales outlets for prepayment tokens or card charging and replace those payment methods with flexible options. This can assist residents in their budgeting to avoid debt in the first place.

Other budgeting assistance from modern PAYG systems includes:

  • In-home displays showing energy consumption, which give a convenient budgeting tool to the consumer.
  • Better communication with the customer including the ability to send messages to the smart PAYG unit.
  • State-of-the-art systems deploying smartphone apps to monitor and control consumption.

 

Three reasons PAYG is the future

  1. Using advanced pay as you go systems, energy service companies handling community energy schemes are able to take on consumer energy debt risk as part of their metering and billing service. The systems can be offered under deals that require no upfront capital outlay, with the service company recovering the cost typically from a charge taken from payments made on the system. Meanwhile, the energy service company can act as meter supplier and operator, much like a utility.
  2. The absence of hard-wired metering means advanced PAYG is suitable for new build housing stock or for upgrading arrangements in already metered or unmetered community heating schemes.
  3. Remote management over a mobile communications network enables housing managers to respond swiftly to consumers with energy or credit top-ups. They can also react to changes in the PAYG mode, tariff and standing charges, extensions of emergency credit, and so on.

Find out how how to minimise customer debt risk in your developments. Download your free eGuide now: Steps to saving: The journey to community heating

Steps to Saving: the Journey to Community Heating

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Kirsty Lambert

Business Development Director at Switch2

A skilled director and leader with both operational and commercial experience, Kirsty has over 10 years’ experience in the community and district heating industry.