Ofgem Proposes Price Cap for 11 Million Energy Customers

11 million households across the UK look to save £75 a year on average, following Ofgem’s energy price cap proposal.

£1 billion is expected in total savings across the country.

If this price cap comes into place, energy companies will be forced to stop charging excessive prices to customers on ‘default deals’ – standard variable tariffs.

Over half of UK households are on these tariffs because they have either never, or not recently switched provider. These prices go up and down with the market and are typically more expensive than fixed rate plans.

Ofgem set the cap at £1136 per year for a typical customer paying by direct debit for dual fuel.

Greg Clark, the Business and Energy Secretary, said that previously “loyal customers were being exploited” by energy companies.

Parliament passed the ‘Domestic Gas and Electricity (Tariff Cap) Act’, which became law on July 19.

This gives Ofgem the powers to put the price cap in place, and also ensures that it has a duty to do so.

The Business and Energy secretary said this represented the government “delivering on its promise to end that injustice and protect households across the country from unjustified price rises”.

Industry group Energy UK said Ofgem’s cap poses a “significant challenge” to many suppliers.

The cap is temporary, and will remain in place until 2023 at the latest. In the meantime Ofgem will carry out further reforms to make the energy market work better for customers by making it more competitive. Their aims also include making switching energy supplier “easier, quicker and more reliable”.

Ofgem will update the cap level every April and October to reflect up-to-date estimated costs of electricity and gas supply.

Dermot Nolan, chief executive of Ofgem, said: “Ofgem has made full use of the powers Parliament has given us to propose a tough price cap which will give a fairer deal to consumers on poor value default tariffs.”

He went on to explain that “households protected by the cap will be able to save even more money by shopping around for a better deal. Meanwhile Ofgem will continue with reforms which aim to deliver a more competitive retail energy market which, combined with protection for those who need it, works for all consumers.”

Energy UK chief executive Lawrence Slade  added: "Energy efficiency is the most effective way to help customers save money on their energy bills for the long term."

“There are over 70 suppliers in the energy market who will now be assessing how this impacts their individual business. It is crucial that the cap ensures we have an investible energy sector where efficient and financially robust companies can trade, and innovation and engagement can continue to flourish and deliver benefits for consumers.”

Anna Thomas

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