Six months after the implementation of the energy price cap, Ofgem chief Martin Cave said its effects had “departed from expectations.”
While it was too early to judge the full impact of the cap, Cave said, he’d been surprised by the initial response from consumers and suppliers.
Speaking at the Utility Week Energy Summit 2019 last week, he noted that, contrary to fears from consumer groups, the price cap hadn’t caused consumer complacency or dampened enthusiasm for switching.
“The rate of switching doesn’t seem to have abated—in fact, if anything, it has been the opposite,” Cave said.
Recent data has shown that electricity switches are up 18% in 2019. April was the most active month for energy switching ever recorded, with 668,371 electricity customers moving to a new supplier.
Cave was also surprised that “the gap between the now capped standard variable (SVT) rate and the cheapest tariffs on the market seems to have remained pretty constant.” That countered worries that suppliers would raise the price of fixed rate tariffs as those on default tariffs were capped.
While the energy cap has been criticised for providing little protection for consumers, especially after it was hiked by £117 from April, Cave said it had been successful in limiting prices.
“It clearly did have the effect of bringing down prices on 1 January and we believe that reduction has been continued subsequently despite the change in energy prices.”
However, Eon-UK chief executive Michael Lewis, also speaking at the summit, said it “critical” that the price cap be reviewed “as quickly as possible.”
“The price cap took a very large amount of money out of the industry at a time when we are expected to invest an enormous amount of money backing smart meter rollouts, the IT systems to enable that and into renewables.”
He also said it was “regressive” to continuing loading policy costs onto energy bills and said instead their costs should be shared through general taxation.
“The UK Energy Research Centre produced a report that showed if you were to take all policy costs out of energy bills today that would be a net gain of 70% for consumers and a very significant reduction for the most vulnerable customers,” he said.
“We have to look at these redistributive effects if we’re going to take this transition where it needs to go and bring everybody with us.”
Lewis said that in his view, “we have a very competitive market which serves most customers very well.”
Cave said that while Ofgem could advise the government about whether the market had reached a stage where the cap wasn’t necessary, the decision about its future was ultimately the secretary of state’s.
However, he noted that Ofgem has launched a consultation into the price cap and said the industry would get a chance to weigh in on it next year.
The cap is currently expected to be in place until 2023, with biannual adjustments, in April and October.
More than two-thirds of consumers (68%) believe the cap should remain, according to a survey taken by Utility Week last month. That’s similar to the figure (67%) who felt the price cap should have been introduced. However, under a third (31%) of those surveyed felt the cap had resulted in a fairer energy bills for them personally.