Ofgem has today updated the level of the prepayment price cap, or safeguard tariff, which will cut bills for around 3 million households by up to £19 a year based on typical consumption. The change, which takes effect on 1 October, will reduce the level from about £1,067 to £1,048 for a dual fuel prepayment customer who uses a typical amount of energy.
Ofgem introduced the temporary safeguard tariff in April this year and will update it every six months based on a pre-defined methodology to reflect the estimated cost of supplying energy. The safeguard tariff is aimed at protecting prepayment meter customers, primarily those on poor value standard variable tariffs, from paying too much for their energy.
This is part of our programme to deliver a fairer, smarter and more competitive market for all consumers. The safeguard tariff applies to households who prepay for their energy, mostly with traditional coin or token operated prepayment meters. These households are amongst those least able to benefit from competition and are more likely to be in vulnerable circumstances.
The level of the cap will fall for electricity customers with prepayment meters by around £19 a year for a customer with typical consumption.4 Customers with Economy 7 meters may see smaller reductions.5 The level of the cap for gas customers has remained broadly unchanged. The exact impact an electricity customer sees will depend on what tariff they are on, and whether they are currently paying less than the cap. In total, we expect around 3 million prepayment customers to see their bills fall. Most of these customers are on non-Economy 7 tariffs that are close to at the current level of the cap, and so will see almost the full £19 reduction based on typical consumption.
Last month Ofgem announced new plans to protect vulnerable consumers. Ofgem will consult shortly after the summer on proposals, including the option of extending the current safeguard tariff for prepayment customers to more vulnerable customers.
The safeguard tariff is one of the Competition and Market Authority’s (CMA) remedies resulting from its two year investigation of the energy market.
Prepayment customers can still make further significant savings by switching to a cheaper tariff.