Energy Price Cap Extended to the end of 2021 to support struggling consumers

What is the energy price cap?

The energy price cap was first introduced by Ofgem in January 2019 in an attempt to limit how much energy suppliers can charge their customers for each unit of electricity they use on default and pre-payment meters.

At the start of October, the price cap was changed to its lowest lever ever and it is this cap that the government has said will now be in place until the tail end of 2021. Normally Ofgem evaluates and alters the price cap every six months.

Some 11 million households on pricey standard tariffs are covered by the energy price cap, currently set at £1,042 per year for a typical dual-fuel household.

Also read: New lowest ever energy price cap comes into force

Why has it been extended?

The impacts of the Covid-19 pandemic have been severe and the actions taken by the government in an attempt to reduce its spread have resulted in hundreds of thousands of people losing their jobs through no fault of their own.

With the winter rapidly approaching, the government is concerned that many people facing financial hardship may not be able to heat or power their homes and default on their energy bills.

Energy suppliers have already raised concerns over bad debt and with the end of the furlough scheme next week we could see millions of extra workers being made redundant and the national unemployment rate soar.

Business and Energy Secretary, Alok Sharma, said: “The Energy Price Cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year. Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”

What does this mean for energy suppliers?

Energy suppliers have often grumbled about the price cap claiming that it restricts how much income they can make. This newest announcement is likely to put added pressure on some suppliers who are already struggling and who will now have to factor in the fact that no change to the energy price cap can now occur until 2021.

The current energy price cap is now at £1,042 per year, a drop of £84 from the previous price cap of £1,126.

Critics of the price cap have stated that some energy suppliers deliberately set their tariffs to as close to it as possible, however, the smarter suppliers will be the ones who can offer markedly cheaper tariffs.

The current situation may be grim, but this could prove to be an opportunity for those energy suppliers who can offer the best value tariffs and support to their customers will be able to entice customers from their rivals.

Further Reading

Ofgem to introduce new rules to help customers struggling with energy bills- what does this mean for energy suppliers?

Smart meter installations rise year on year for the first time since Covid-19 lockdown

As Winter approaches three million households are in Energy Bill debt to Energy Suppliers

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