New lowest ever Energy Price Cap comes into force

Lowest ever

Energy suppliers must now abide to the price cap of £1,042 per year, a drop of £84 from the previous cap of £1,126 for the next six months.

The move is forecast to save millions of consumers some money on their energy bills but as any price comparison site will say is that better deals can be found via cheaper fixed rate, fixed term tariffs.

Why the drop?

Due to the Covid-19 pandemic demand for energy plummeted as industry and businesses closed their doors as most major economies lockdown to slow the virus’ spread. As a consequence, Wholesale energy prices tumbled to record lows.

The lockdown has also had a huge impact on the economy which Ofgem has cited as part of the reason for lowering the price cap to its new level. Energy suppliers are concerned that with the government’s furlough scheme ending at the end of the month more consumers will struggle to pay their energy bills, the price cap could help reduce the numbers unable to pay.

Cheaper Tariffs

Many challenger energy suppliers are already offering tariffs that are well below the price cap level, giving them an advantage over their larger rivals.

“Millions of households, many of whom face financial hardship due to the COVID-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced. They can also reduce their energy bills further by shopping around for a better deal,” said Jonathan Brearley, chief executive at Ofgem.

“This winter, the prepayment cap, due to expire at the end of 2020, will roll into the default tariff cap. We have also recommended to Government that the price cap for households on default tariffs remains into 2021. This means price protection for prepayment meter customers will continue as long as the Government price cap is in place. The Government has also agreed to a support package with regulators and industry to help people who may be worried about paying essential bills such as utilities or credit due to coronavirus,” said Ofgem in a statement.

Currently, 67 tariffs come in below the price cap level with most of those being offered by the smaller energy suppliers.

The 5 cheapest tariffs

According to Money Supermarket, the cheapest energy tariffs are these:

Supplier name                                                                                 Cost

Outfox the Market – One Green Flex 4.0                                    £846

Outfox the Market – Fix’d 20 14.0                                               £854

Green Energy – Maple                                                                   £854

Utility Point – Just Up 20 WK39                                                   £869

Green Energy – Sturgeon                                                              £870

How does the cap affect energy suppliers?

The cap has generated a lot of debate and complaints from the larger energy suppliers since its introduction as they complain that their ability to make a profit from customers who are unwilling to switch supplier or renegotiate at the end of their contracts.

Job losses have been made as a result of the price cap, chiefly from the larger suppliers who have been forced to make savings due to a fall in revenues and profits. With the market under pressure as a result of Covid-19 we could see more job losses announced over the coming months.

Another negative of the price cap is that some energy suppliers raise their tariffs to a level that either matches the price cap or is just below it in order to reduce their losses.

This inadvertently has the opposite effect on trying to save the consumer money as it sets a price target for suppliers to achieve. On the other hand, this is a boon for challenger suppliers who have more flexibility and the ability to provide better deals for their customers.

Ofgem review their capping levels twice a year, with the next change due to take place in March. With worries over new lockdown measures being imposed over the winter we could see the cap remaining at a lower level.

Further Reading

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Through our energy market consultancy services, and the software we’ve developed, we’re supporting new UK electricity and gas suppliers get set up and start supplying.

For more information on how to start and manage an energy company, get in touch with Dyball Associates today.