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Ofgem has announced the levels of the prepayment price cap which come into effect this April. The temporary price cap is one of the Competition and Market Authority’s (CMA) remedies resulting from its two year investigation of the energy market.
The cap will initially apply to over four million households who prepay for their energy, mostly with traditional prepayment meters, and are amongst those least able to benefit from competition. The levels of the cap vary for electricity and gas, by meter type and region.
Ofgem estimates that many prepayment customers are likely to see reductions in their gas bill of around 10-15% from 1 April 2017 or around £80 a year based on a typical household’s consumption. Many prepayment customers who use electricity to heat their home such as those on Economy 7 meters will see their electricity bill fall, with reductions of around £80 a year based on a typical household’s consumption.
The CMA found that prepayment meter customers face particularly high levels of detriment. Competition among suppliers for prepayment customers is less developed than for those who pay by direct debit, cash or cheque. This means that there are fewer tariffs available to these customers and the tariffs that are available are generally more expensive. Customers with prepayment meters are also more likely to be in vulnerable circumstances than those paying by other means. The cap is due to expire at the end of 2020 when the roll out of smart meters is set to be completed, which will help prepayment meter customers in particular access better deals.
Dermot Nolan, chief executive of Ofgem, said: “We want all consumers to enjoy the benefits of a more competitive energy market, regardless of their circumstances. Customers who prepay for their energy are denied the best deals on the market available to those using other payment methods. They are also more likely to be in vulnerable circumstances, including fuel poverty. This temporary cap will protect these households as we work to deliver a more competitive, fairer and smarter market for all consumers.”
Citizens Advice has welcomed the savings this will bring prepayment meter customers but has called for the government to cut bills for other loyal customers on standard tariffs.
Gillian Guy, chief executive of Citizens Advice, said “This cap should stop some of the poorest households paying over the odds to heat and light their homes. For years prepayment meter customers have been paying more for the same gas and electricity as other customers, whilst also receiving a second-class service from their supplier.
“The cap set by Ofgem will help millions save money but action shouldn’t stop there. The government has rightly expressed concern that loyal customers on standard tariffs are paying over the odds for their gas and electricity. It could help more struggling households, including low-income pensioners and families, by extending this cap to people eligible to receive the Warm Homes Discount.”
While some people prefer to use a prepayment meter, which can be easier to manage for example in a shared rented home, others are put on prepayment meters because they have struggled to afford their monthly or quarterly bills. Prepayment meters can give people more control over how much they spend but the cost per unit has until now been much more expensive.
Citizens Advice’s Fair Play for Prepay campaign highlighted the problems prepayment meter customers had with higher prices, poor service and a lack of choice in available tariffs.
Stephen Murray, Energy Expert, MoneySuperMarket said“Prepayment customers have been largely ignored when it comes to competitive tariffs for far too long, and therefore the decision from the CMA to reinvigorate the market is encouraging. But it’s up to these customers to shop around now and find the best deal for themselves, rather than waiting for the price cap to come into force. If they wait, they will still be paying more than they need to. By switching customers can benefit from lower tariffs, and the price cap when it’s introduced.”