Ofgem chair Martin Cave has reflected on the impact of the energy price cap six months on – saying it has “departed from expectations” in two key areas.
Speaking at Utility Week Energy Summit 2019 last week, Cave said it was still too early to make an educated judgement on the impact of the cap, and that Ofgem’s recently launched consultation would help to frame the debate. However, he said the initial response from consumers had surprised him in some ways.
Meanwhile, the summit also heard from Eon-UK’s chief executive, Michael Lewis, who insisted it was critical that the price cap was reviewed as soon as possible. He added that it was a “regressive” approach to keep loading policy costs into energy bills and that the burden needed to be shared with general taxation.
Cave (pictured below) stressed that the future of the cap was ultimately the decision of the government and that the industry would get the chance to put its view across next year.
“One is that the rate of switching doesn’t seem to have abated – in fact if anything it has been the opposite.
“The other is the gap between the now capped standard variable tariffs (SVT) rate and the cheapest tariffs on the market seems to have remained pretty constant.
“It clearly did have the effect of bringing prices down on 1 January and we believe that reduction has been continued subsequently despite the change in energy prices.”
Asked about an eventual lifting of the cap, Cave said that while Ofgem has a role in advising whether the market has reached a stage where the cap is no longer required, it was still ultimately the decision of the secretary of state.
A survey for Utility Week last month found that 68 per cent of respondents agreed the cap should stay, with a similar number feeling it had been necessary to bring it in. This is despite the fact that the cap has already seen one hike in price – a £117 increase introduced on 1 April, taking the ceiling for a typical dual fuel customer to £1,254.
Speaking on a panel of sector leaders at last week’s summit, Lewis said: “The price cap took a very large amount of money out of the industry at a time when we are expected to invest an enormous amount of money back into smart meter rollouts, the IT systems to enable that and into renewables.
“It is critical that the price cap is looked at as quickly as possible. In my view, we have a very competitive market which serves most customers very well.
“We cannot keep loading these costs into energy bills. It does have to move into general taxation because it’s very regressive putting it onto energy bills. The UK Energy Research Centre produced a report that showed if you were to take all policy costs out of energy bills today that would be a net gain of 70 per cent for consumers and a very significant reduction for the most vulnerable customers.
“We have to look at these redistributive effects if we’re going to take this transition where it needs to go and bring everybody with us.”