Unpicking Energy Price Caps

What they are and who will benefit?

What is an energy price cap?

Energy price caps have featured in the media over recent months but do you really know what they are and who will benefit? This article unpicks the detail, providing just the useful facts to help you to help others understand what it means for them.

There are two interconnected price cap initiatives;

  • The pre-payment meter (PPM) cap (introduced on 1 April 2017).
  • The safeguard tariff.

Both aim to protect households from unexpected price increases and limit how much an energy supplier can charge customers that are covered by the cap. Energy suppliers cannot charge more than the level set by the energy regulator, Ofgem. The level of both the pre-payment meter cap and safeguard tariff is reviewed by Ofgem and can go up or down.

From February 2018, Ofgem extended the protection to cover vulnerable customers receiving the Warm Home Discount, referred to as the safeguard tariff. Ofgem has further plans to extend this to more vulnerable customers (eligible for the Warm Home Discount but not in receipt of) for winter 2018-19.

 The latest Ofgem update on 1st April 2018 increased the dual fuel cap by £57.

When a customer's fixed-term deal ends they usually automatically move to their supplier's standard variable tariff (which are often more expensive compared to the cheapest rate in the market).

So, in addition to the pre-payment meter cap and safeguard tariff described above, the government is introducing legislation to control variable or default tariffs. The energy price cap is expected to take effect once the law is passed in time for winter 2018-19 and will help protect a further 11 million households by capping the unit price of the standard variable or default tariffs.

Why have they been introduced?

Energy is an essential service and some households are badly impacted by unexpected price increases and struggle to afford the cost of energy.

Prepay customers in particular have fewer energy tariff choices and pay disproportionately more than customers who pay in other ways, like direct debit or credit. They are also more likely to be in vulnerable circumstances and in debt and so the pre-payment meter cap was introduced to protect this group of customers. Through the safeguard tariff, Ofgem extended this price protection to a further one million vulnerable customers receiving the Warm Home Discount.

Who benefits?

The pre-payment meter cap and safeguard tariff currently applies to customers who:

  • Get the Warm Home Discount or,
  • Have a prepayment meter.

Eligible households don't need to do anything, their energy supplier must automatically ensure its charges to them fall below the level of the cap. Details of the energy price cap are yet to be decided and published.

Does this mean I don't need to shop around for cheaper prices?

Absolutely not! The pre-payment meter cap, safeguard tariff and energy price cap just allow customers to pay a fairer price based on the real costs of energy.

Householders should still shop around for different tariffs or suppliers to help reduce their bills.

Will everyone be better off because of these new initiatives?

These measures will protect many people from unexpected increases in their energy bills but there are still some people who will not benefit.

It's really important that all householders continue to shop around for their energy and still take up wider support that may be available from energy suppliers.

I'm on the safeguard tariff with my energy supplier so am I on the best deal?

Not necessarily, the safeguard tariff only ensures you don't pay over a certain amount per unit of energy. There could well be tariffs and/or other suppliers that are cheaper than the safeguard tariff.

You should shop around to get the best deal, however, if you switch to a smaller supplier who doesn't provide the Warm Home Discount you won't continue to receive the safeguard tariff or your energy rebates via the Warm Home Discount. Make sure you check before you switch.

Where can I find out more information?

Start by asking your energy supplier if you could benefit from being on a cheaper tariff or could be eligible for further assistance.

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