Energy price cap - down for now but still a lousy deal

Today (7 August 2019), Ofgem, the gas and electricity regulator, announced the level of the Energy Price Cap for the 6-month period commencing 1 October 2019.

With effect from 1 October 2019, customers on Standard Variable tariffs and other default tariffs will see their bills cut by an average of £75 (6%).

This is the third time that the Energy Price Cap has been set since it was first introduced on 1 January 2019.

So far, we've had 2 cuts totalling £159 with a massive hike of £117 in between.

On balance this leaves Standard Variable tariffs £42 lower than they were before the price cap came into effect although, possibly coincidentally, almost exactly where they were this time last year.

There's a sting in the tail for prepayment meter customers. Following a review of the calculation methodology by the Competition and Markets Authority (CMA), the prepayment meter cap goes from being £12 below, to £38 above the default tariff cap. An adverse shift of £50.

Energy Price Cap (v3) - key elements summarised

The default price cap will fall by £75 (3.4%) to £1,179 from 1 October. It will affect approximately 11 million households.

The prepayment price cap will fall by just £25 (2%) to £1,217 from 1 October. It will affect approximately 4 million households.

The new level of the cap will run for 6 months from 1 October 2019 through to 31 March 2020, when it will be reset again.

£75 (100%) of the decrease has been attributed to lower wholesale energy costs.

Increases in operating costs, network charges and environmental charges pushed the cap up by £7 but these were fully offset by reductions in other costs such as profit margins and VAT.

Energy Price Cap (v3) - TheEnergyShop.com observations

The new level of the cap will reduce energy bills by just 3.4% compared to where they were before the cap came into effect. Possibly coincidentally, standard variable energy tariffs are right back to where they were this time exactly one year ago.

Prepayment meter customers have fared particularly badly. The change in the method of calculation of the prepayment meter cap means that their bills have increased by £50 relative to customers on the default tariff cap. Their net reduction of £25 equates to less than 50p a week.

According to analysis from energy comparison website TheEnergyShop.com, the default tariff cap is failing to keep up with the competitive market (see graph below). Potential savings from switching before the cap came into effect were around £320 a year. After the latest energy cap comes into effect, potential savings from switching will be even higher at £324. And while there was a period where the cap narrowed the difference, this was very short lived. On balance, the default tariff cap appears to have made no difference whatsoever in terms of protecting energy consumers from lousy energy deals.

Comment

Joe Malinowski, founder of the award-winning energy price comparison website TheEnergyShop.com commented:

"A reduction in the energy cap might make for nice headlines but it doesn't get away from the fact that it is a really lousy deal for energy consumers.

11 million customers on standard default tariffs have already each lost out £214 since the cap came into effect. They will each lose an additional £33 a month waiting for their bills to fall. Once the new cap comes into effect, they will then continue to lose a further £27 a month."

Joe Malinowski, concluded.

"The evidence to date shows that the energy price cap has made absolutely no meaningful difference in protecting consumers from rip off energy deals. Worse still, it creates a false sense of security that you are getting a good deal when the reality is the exact opposite. The only sure way of getting a decent energy deal is by shopping around."

Contacts

Scott Byrom
Chief Executive Officer
07772 129 591
scott.byrom@theenergyshop.com

Joe Malinowski
Founder
07970 160 541
joe.malinowski@theenergyshop.com