How the energy price cap could leave some customers worse off

09 September, 2018, 06:47 | Author: Mary Valdez
  • Industry watchdog Ofgem is bringing in a price cap that will limit energy companies charging no more than £1,136 a year. File image

More than 11 million households across the United Kingdom will benefit from an energy cap that will save them an average of £75 a year.

"When the price cap is introduced suppliers will have to cut their prices to the level of or below the cap, proposed to be £1,136 per year for a typical dual fuel customer" whose pay monthly from their bank accounts, Ofgem said Thursday.

The price cap of £1,136 is provisional and will be confirmed in November by the regulator.

The cap will be temporary but in place until 2023 at the latest.

Ofgem has already capped bills through its safeguard tariff for four million pre-payment meter households, which was extended in February to one million more vulnerable consumers on poor-value default deals who already received the Government's Warm Home Discount.

"This may be the great unintended outcome of the price cap".

He added: "Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering".

"We do not believe a price cap is a sustainable solution for the market, and is likely to have unintended consequences for customers and for competition, but we are positioning Centrica to serve our customers effectively and deliver a profitable energy supply business under the temporary default tariff cap".

The cap will be reviewed every six months and will last until 2020, at which point the Government will have the chance to renew it.

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In effect that would penalise the consumers that go to the effort of switching - by increasing their prices.

The industry watchdog's proposals would see energy suppliers being forced to cap their annual tariffs at £1,136 - a move that could save those on the worst deals up to £120 per year.

The limit would save consumers using a typical amount of gas and electricity about £75 per year on average - and in total some £1.0 billion annually.

"This announcement marks the end of uncertainty for energy providers", noted David Madden, analyst at CMC Markets UK.

'Households protected by the cap will be able to save even more money by shopping around for a better deal.

He says: "The price cap is only a sticking plaster and will not fix the fundamental failings within the energy market".

Paul Earl, head of energy at Comparethemarket.com, said: "There is concern that the price cap will make energy more expensive".

And it's on this final point we'd like to look into in a little more detail, specifically because loveMONEY readers tend to be regular switchers in order to keep costs down.

Energy experts warn that the cap is still nearly £300 more expensive than the cheapest deal on the market.

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