Ofgem has set the final level of the price cap, following the regulator’s statutory consultation published on 6 September, at £1137 per year for a typical dual fuel customer paying by direct debit. When the price cap comes into force suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap, forcing them to scrap excess charges.
The cap will save customers who use a typical amount of gas and electricity around £76 per year on average, with a typical customer on the most expensive tariffs saving £120. The savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity and how they pay for their energy. In total, the price cap will save consumers in Great Britain around £1 billion.
Households protected by the cap will be able to save even more money by shopping around for a better deal. The price cap level will be updated in April and October every year to reflect the latest estimated costs of supplying electricity and gas, including wholesale energy costs. This will ensure that those protected always pay a fairer price for their energy.
Wholesale costs have risen significantly over the last year. If this trend continues, it is likely that in February Ofgem will announce an increase in the level of the cap to take effect in April. Customers can be confident that any increase in the cap would only reflect changes in the actual costs of providing the gas and electricity they use rather than supplier profiteering so that they will always pay a fair price for their energy.
Dermot Nolan, chief executive of Ofgem, said “From 1 January, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1 billion for their gas and electricity. The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes. Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible.”
Rachel Reeves, Chair of the Business, Energy and Industrial Strategy Select Committee said “The energy price cap is a vital solution to fixing the broken energy market and protect consumers. I welcome Ofgem’s announcement on the level of the price cap. However, vulnerable customers must not lose out. The Secretary of State needs to set out how the new price cap will ensure that vulnerable customers do not slip through the net and actually find themselves worse off. If the Government are unable to provide this guarantee, then the BEIS Committee will need to revisit this issue and ensure the price cap delivers as intended.”
Gillian Guy, Chief Executive of Citizens Advice, said “This price cap will finally offer some much needed protection for loyal households on default tariffs, who have been exploited for too long. While the cap will mean that people pay a fairer price, it will not be the best deal on the market. By shopping around and changing tariff or supplier, people are likely to be able to make much greater savings on their energy bills.”
“Households may also be able to reduce their bills and make long-term savings by improving the energy efficiency of their homes. Simple steps, such as better insulation or heating controls, are a good place to start.”
Peter Earl, Head of Energy at comparethemarket.com, said “Whilst it’s important that households are protected from high standard variable tariff (SVT) costs, people should know that the price cap level is likely to be far higher than most would pay if they switched to a fixed tariff. On average, customers who switch pay £921 per year on a dual fuel fixed tariff – £216 less than the cap. We are worried that people will stop reviewing their energy tariff as a result of the price cap; our previous research suggests that more than a fifth (22%) of consumers say that the introduction of a price cap would result in them being less likely to switch provider. People should not take this announcement as a signal to disengage from the energy market. They could still save a lot by shopping around.”