Conservative Party Energy price cap – The facts

So, we find ourselves facing an unexpected ‘snap’ general election  Over the coming weeks I intend to look at the manifesto’s of the main parties (lucky me!) to see what they propose in relation to energy policy and find more about the Conservative Party’s proposed energy price cap. I want to see how these proposals will effect Gas and Electricity prices, our void property energy management services and their impact on energy switching. Ultimately, how will the general election effect the prices you, me and tenants all over the UK pay for our energy.

The conservatives have announced they intend to introduce an energy price cap on energy prices although no details have been disclosed, it would follow that this would apply to credit tariffs as a price cap for prepayment meters was introduced at the start of this April 2017 specifically then, a price cap would have to be applied to expensive standard variable tariffs (SVT’s) in order to protect a significant portion of the market.

The announcement has had a mixed reception already unsurprisingly the ‘big six’ energy suppliers have been amongst the first to respond. There will no doubt be an extended debate about the possible impacts of another cap. If you read my earlier post on the prepayment price cap and consider the impact on credit prices the cap has had then you might be asking the same questions as me. ‘Who will be paying for a new price cap?’

Energy companies have recently increased their prices, the introduction of an additional cap on credit SVT’s would inhibit their ability to control their pricing model. Without any flexibility to set SVT’s the only pricing control suppliers will have would be through fixed price deals. Essentially therefore future fixed price deals would have to drastically increase in price in order to pay for the cap and protect energy supplier profit margins. In the same way the price differential significantly narrowed in the prepayment market this month, I believe we can reasonably expect to see a similar narrowing in the credit market.

I think it is safe to say an energy price cap is a lazy mechanism by which to offer protection to consumers in a competitive market. I think it is likely to negatively influence consumer choice and I think for those who are currently engaged in the domestic energy market it will feel like a price increase. Should the Government and the regulator Ofgem take action to help protect vulnerable customers? Yes. Of course it should, in fact it is part of Ofgem’s mandate  to do so, but should it be in the form of a blunt instrument such as a price cap? No, no I do not believe it should be.

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