Domestic energy price cap proposal announced by Ofgem

Domestic energy price cap proposal announced by Ofgem

Ofgem has released a price cap proposal to provide over 11 million customers, on poor value default tariffs, with price protection to prevent them from being overcharged.

The proposal follows the passing of the Government’s Domestic Gas and Electricity (Tariff Cap) Act, which became law on 19 July. This legislation was passed by Parliament to provide a temporary price cap for domestic customers on Standard Variable Tariffs (SVTs) and default tariffs, assigning Ofgem with the duty to ensure a fair price.

Ofgem has currently opened a statutory consultation on the announcements, allowing suppliers and stakeholders to comment on the proposals before 6 October. The regulator is working towards having the cap in place by the end of 2018.

The impact on customers

The introduction of the price cap will see a requirement for suppliers to cut their prices to the level of, or below, the cap. This is proposed to be £1,136 per year for a typical dual fuel customer paying by direct debit and £1,219 per year for a customer paying by standard credit.

Exact savings for each household will be dependent on the cost of their current deal, how much energy they use, and whether they use both gas and electricity. On average it’s been estimated that the typical customer, on a dual fuel deal of gas and electricity, will save around £75 a year. Ofgem believes the price cap would save consumers a total of around £1 billion.

The price cap moving forwards

Ofgem plan to update the level of the cap in April and October every year in order to account for the latest costs of supplying gas and electricity.

The price cap is a temporary measure, to be in place until 2023 at the latest. This is designed to allow Ofgem time to implement further reforms to make the energy market more competitive, enabling it to work more effectively for all consumers.

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James Shaw

Posted by on Thursday, the 6. September at 16.48

James Shaw joined the Market Intelligence team at Utilitywise in 2018 as a Graduate Market Intelligence and Policy Analyst. James has a master’s degree in Energy Engineering with Environmental Management from the University of East Anglia.