Political attention is focused on capping prices for domestic customers, and exempting energy intensive industries from many of the regulatory costs that have pushed electricity prices up by 43% since 2010. This leaves small businesses to carry the cost of many years of misguided intervention in the energy markets.
The domestic energy market has become split between those households that switch supplier, and benefit from competition, and those that do not.
The switchers have driven competition in the market, and new suppliers have grown through offering competitive tariffs to attract customers.
Inactive customers, including significant proportion of elderly, vulnerable and pre-pay consumers, have not benefitted from competition and are paying expensive Standard Variable Tariffs.
The proposed absolute price cap, estimated to save many customers £100, is likely to rise as costs increase due to investments in networks and generation, and will result in more frequent, regular price increases for customers. If wholesale prices rise before the cap is revised, we could end up in a situation where switching is non-existent as fixed price tariffs cannot compete.
And recent evidence does not support regulatory intervention to set prices – consumer costs have risen, and will continue to rise after the early CfDs awarded contracts far above levels that are being achieved today for offshore wind that will be constructed in parallel, and the much criticised £92.50/MWh for Hinkley Point.
This policy may bring some short term respite from rising energy prices, but risks pushing costs onto small businesses, and brings little long term benefit.
This focus on price, rather than cost, distracts from the best way to reduce long term costs through reducing consumption. Domestic energy efficiency also brings benefits in comfort and health.
In a time of transformation, energy system needs joined up, long term thinking, rather than further short term policies.