Almost half of bill payers believe the price cap has led to fewer deals in the energy market, while four in 10 agree the cap has reduced competition, research from KPMG has found.
The consultancy’s data, published just hours before Ofgem is due to make its latest update to the cap, highlights the perceived negative impact that the mechanism has had on energy market competition.
The survey of 1,700 bill payers carried out by YouGov earlier this month found widespread awareness of the cap.
When asked, 84% said they were aware of the price cap, and of them 87% correctly understood its purpose.
Yet 48% of all bill payers agreed that the cap had led to fewer options to get a better deal on their energy, despite more energy suppliers starting to offer fixed price deals below the price cap.
Only one in four (25%) said they shopped around for a new energy supplier or tariff in the past 12 months, despite 41% saying they would like to switch to a fixed deal but are limited by the options available.
A total of 42% agree that the price cap has reduced competition in the energy market, while one in three (34%) admitted to not shopping around anymore as prices are capped.
Almost two thirds of respondents (62%) said they were in favour of the price cap when it was introduced in 2019, but only a third (35%) agree it has had a positive impact on energy prices in the five years since, and less than that (28%) believe it has been effective in limiting supplier profits.
Despite this, when considering the key priorities for improving the energy market, consumers were most in favour of maintaining the price cap (39%), with increasing competition (36%) and increasing investment in green energy solutions (28%), completing the top three responses.
Simon Virley, vice chair and head of energy and natural resources at KPMG in the UK, commented: “Five years after introducing a cap on energy prices, and following two years of record high energy prices, consumer appetite for switching suppliers seems to be severely dampened by a perceived lack of deals in the market. With prices now falling rather than rising, hopefully this will spark a new range of fixed price deals.
“The price cap was always intended to be a temporary measure to protect ‘sticky’ customers, while the energy market was reformed. But this protection appears to have come at some cost in terms of limiting choice and stifling innovation. We now need a national conversation about the future of our retail energy market – one that balances appropriate consumer protection with incentives for investment and innovation in a smarter energy system that benefits all consumers.”
Responding to the research, an Ofgem spokesperson said: “We want customers to have more choice in the market so welcome signs that switching is returning to the market. Latest figures from Electralink showed 207,000 changes of supplier in January 2024. A 76% increase from the 117,000 recorded in January 2023 and 3% more than in December.
“We have already taken steps to encourage competition, announcing last year that the Market Stabilisation Charge, which required energy companies who acquired a new customer to pay compensation to the previous supplier, will end on April 1, 2024. From the same date, customers changing supplier will be entitled to £30 compensation if their switch isn’t completed in five days, down from the current deadline of 15 days.
“The price cap sets a ceiling on prices to protect consumers, there has never been anything about it that stops suppliers from offering deals below the cap. Our primary goal is to protect customers and encouraging a strong competitive market is an important part of that.”
A Department for Energy Security and Net Zero spokesperson said: “We want to ensure the energy market is working for consumers and that families are getting the best deal.
“We’re providing significant financial support for those who need it most, including £900 in cost-of-living payments, £150 to those on eligible disability benefits, plus a further £150 Warm Home Discount.
“We continue to work closely with Ofgem to explore how to deliver a resilient, competitive and flexible energy market.”