OFGEM INFO23 Mar 2019 18:17
A price cap on default energy tariffs (including standard variable tariffs or ‘SVTs’) came into force on 1 January 2019, bringing price protection to around 11 million energy customers.
Since 1 April 2017, there has also been a price cap for consumers on prepayment meter energy tariffs. This cap covers around 4 million energy customers, and is expected to last until 2020.
The caps deliver fair energy prices
by ensuring these tariffs reflect the underlying costs to supply energy, and no more.
Why are there price caps?
With the government, Ofgem has introduced the caps to protect consumers temporarily, while longer-term reforms like smart metering are implemented. That’s because the market isn’t currently working for everybody. Customers
on prepayment meter tariffs can find it harder to access cheaper offers. And people who don’t shop around are getting stuck on ‘default’ deals, paying more than they need to. Default tariffs (which include standard variable tariffs) are a basic supplier offer, and are usually the most expensive.
Who’s protected?
Not everybody. Around 11 million customers are covered by the Default Tariff Price Cap, and 4 million customers by the Prepayment Meter Price Cap. The caps don’t apply to people on fixed-term deals, as these are more likely to be good value.
Price cap costs breakdown
While wholesale costs have recently fallen, overall they remain 17% higher compared to the previous price cap period.
The latest cap levels update
Twice a year, in April (the ‘summer’ cap period) and October (the ‘winter’ cap period), Ofgem adjusts the cap levels to reflect the estimated costs to supply energy over the next six month price cap period. The latest update means the level of the caps will increase in April 2019. The Default Tariff Cap by £117 to £1,254 per year and Prepayment Meter Cap by £106 to £1,242 per year for a dual fuel customer with typical usage.
Why have price caps gone up and
not down?
Capped prices only increase when the underlying cost of energy increases. Around £74 of the £117 increase in the default tariff cap is due to higher wholesale energy costs. These have similarly pushed up the level of the prepayment meter cap. Higher oil prices last year contributed to a rise in wholesale gas prices, which, because of the importance of gas as a source of electricity generation, led to higher wholesale electricity prices.
For an explanation of terms, see www.ofgem.gov.uk/energy- price-cap-glossary
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