UK Energy Secretary Grant Shapps is set to examine potential changes to the price cap on household power and gas bills as part of a wider drive to restore competition to the sector.
(Bloomberg) — UK Energy Secretary Grant Shapps is set to examine potential changes to the price cap on household power and gas bills as part of a wider drive to restore competition to the sector.
The cap — introduced in 2019 to protect customers from price-gouging — has now effectively become the universal energy price for consumers. Only a small number of firms offer deals below the cap — which is set quarterly by the regulator Ofgem.
Shapps is keen to ensure competition is returned to the sector, and as part of that is preparing to look at whether the cap is still fit for purpose, a person familiar with the matter told Bloomberg. He’s not yet considering scrapping the measure, and no decision is imminent, according to the person, who requested anonymity discussing private deliberations.
The energy secretary has come under increasing pressure to reform or abolish the price cap amid signs it’s crimped competition in the sector. The Centre for Policy Studies on Tuesday called for the ceiling to be scrapped, suggesting an alternative would be to introduce a social tariff to protect against households falling into fuel poverty.
Consumer groups like Citizens Advice back the idea of a social tariff saying many lower-income households aren’t on benefits and would not be eligible for current forms of bill support, such as the Warm Home Discount.
The cap was “introduced with the best intentions,” but “has gone far beyond its intended purpose and is actively harming competition,” the CPS said. “Competition in the energy market has been essentially frozen, creating significantly higher prices for consumers and driving inflation.”
Uswitch.com, a UK-based price comparison service, also on Tuesday called for reform.
Wholesale gas and power prices have fallen about 55% this year as the worst of the energy crisis fades. In July the price cap level dropped and these lower costs will continue to feed into calculations over time.
“Instead of regulating the exact price of energy every three months and banning cheaper deals, we should regulate the principle we are trying to achieve,” Richard Neudegg, its director of regulation, told Bloomberg in an emailed statement. “This could mean requiring all suppliers to offer a transparent standard tariff that represents fair value for money for households.”
Shapps has repeatedly called on energy suppliers to pass on savings to consumers from falling wholesale prices, and in April, his department said it intended to consult this summer on “the future of the price cap on default tariffs.”
The Department for Energy Security and Net Zero said in a statement that it welcomed the CPS report, and that its consultation aims to “ensure people can access the full benefits of moving to a smarter, more flexible energy system.”
–With assistance from Rachel Morison.
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