The government has introduced the Domestic Gas and Electricity (Tariff Cap) Bill to Parliament, aimed at placing a requirement on the Office of Gas and Electricity Markets (OfGEM) to cap energy tariffs until 2020.
The government says the new arrangement will protect around 11 million households on the highest energy tariffs, such as standard variable or other default contracts, in addition to the 5 million vulnerable households already protected by OfGEM’s safeguard cap.
When setting the cap, OfGEM will have to balance the needs of maintaining an incentive for consumers to switch suppliers and an incentive for suppliers to improve efficiency, as well as enabling them to finance their supply activity and compete.
Why cap energy tariffs?
In a written statement, the Secretary of State for Business, Energy and Industrial Strategy (BEIS), Greg Clark, said domestic customers of the big 6 energy suppliers pay around £1.4bn a year more than they would in a properly functioning competitive market. Some consumers are paying up to £300 more than needed. These overpayments are the reason for introducing the cap.
Clark also wrote that the government had accepted the recommendation from the BEIS Select Committee to add in safeguards so that consumers who opt for green standard variable or default tariffs are protected without stifling investment in green energy. His statement goes on to say that OfGEM will be required to consult on a potential exemption for green tariffs.
Consumer protection guaranteed
Greg Clark said: “Energy prices for millions of households on default tariffs are still too high. Our new price cap will guarantee that consumers are protected from poor value tariffs and further bring down the £1.4bn a year consumers have been overpaying.”
Energy expert view
“The idea of capping more expensive ‘default’ electricity tariffs to protect consumers is great news but will have to be handled carefully if investment in new cleaner generation capacity is to continue and suppliers are to sustain their operations.” Alastair Fells MEI, Incorporated Eng, PG Dip Fuel Tech, BSc Hons