Ofgem today announced an increase to two energy price caps that will affect 15 million households in the UK.
Energy bills will rise by £117 for 11 million households on default or standard variable tariffs and by £106 for four million prepayment meter customers from 1st April this year.
“Shock to the system”
Alex Neill, Which? Managing Director of Home Services, said: “This eye-watering increase to the price cap will be a shock to the system for people who thought that it would protect them from rising bills.
“Energy customers can take the power back into their hands by switching and securing a better deal before the new cap comes into effect in April. While there are fewer cheap deals on the market than a year ago, by switching today you could choose better customer service and potentially save more than £150 a year.”
“Important mechanism” to protect customers
Matthew Vickers, Chief Executive at the Energy Ombudsman believes while it’s early days for the price cap, it is an “important mechanism” that will help protect consumers.
He added: “Given the challenging market conditions facing energy suppliers, it’s right that the level of the cap is reviewed regularly. Price is important to consumers but so is good customer service. In fact, there is growing evidence that poor service is just as likely as price to force consumers to switch energy supplier.
“What this comes down to is trust and confidence. People want to feel that they are being treated fairly and paying a fair price for their energy.”
Government and Ofgem “struggling” to support energy sector
Professor David Elmes, Leader of the Warwick Business School Global Energy Research Network, said: “It is no surprise that Ofgem has been forced to raise the energy price cap. Last year we saw eight energy companies fail and the merger between SSE and npower fall apart. The collapse of Economy Energy last month showed 2019 is not going to be any easier for energy companies.
“The government policy to set a price cap was just a political game between parties who wanted to look tough on the energy companies. That price cap is making it hard to run a viable retail energy business in the UK. While it’s right to ensure customers get a fair deal and good service, the government and Ofgem are struggling to support a sector that’s essential to the UK economy.
“We are seeing more and more evidence that the way energy companies are expected to compete isn’t working. The government needs to think again about the policies it makes that Ofgem has to implement.”
“A damp squib”
Martin Lewis, Founder of Money Saving Expert and its Cheap Energy Club says the new average rate of £1,254 a year is £34 times more than what suppliers were charging in December before the cap was launched.
He adds: “The much-talked-about, much-vaunted but ill-thought-through price cap will now feel like a damp squib to most people. It may have cut bills for three months but from 1 April, the new rate jumps up 10%.
“The price cap is itself misnamed. The new £1,254 figure is not the maximum anyone will pay. It’s a rate cap not a price cap. Your cap depends on your usage, the £1,254 figure is a nominal one, showing what the cap would be for someone with typical usage. If you have higher usage, your cap will be higher; if you have lower usage, your cap will be lower.
“The worry is the cap gives people a false sense of protection. Yet the message now is the same as it has always been. Do not simply sit on your hands and stick with your energy provider’s capped standard tariff – that just means you’re ripping yourself off.”
Energy efficiency and renewable schemes should be rolled out
The Energy and Climate Intelligence Unit (ECIU) says the price cap is a temporary measure “therefore it is convenient that the means of locking in lower bills for the long term are in plain sight”.
Head of Analysis Dr Jonathan Marshall adds: “Increasing the cap runs the risk of undoing one of the energy sector’s good news stories – that domestic bills have been falling in recent years as more efficient homes and appliances require less gas and power to run.
“It doesn’t have to be the end of the road for falling bills, however. Not only would implementing an ambitious energy efficiency scheme allow energy waste to be curbed but rolling out renewable technologies that run on free wind and solar fuels rather than those sourced from global commodity markets would ensure that the UK is insulated from price shocks in the future.”