The proposal follows the passing of the Government’s Domestic Gas and Electricity (Tariff Cap) Act, which became law on 19 July. This legislation was passed by Parliament to provide a temporary price cap for domestic customers on Standard Variable Tariffs (SVTs) and default tariffs, assigning Ofgem with the duty to ensure a fair price.
Ofgem has currently opened a statutory consultation on the announcements, allowing suppliers and stakeholders to comment on the proposals before 6 October. The regulator is working towards having the cap in place by the end of 2018.
The impact on customers
The introduction of the price cap will see a requirement for suppliers to cut their prices to the level of, or below, the cap. This is proposed to be £1,136 per year for a typical dual fuel customer paying by direct debit and £1,219 per year for a customer paying by standard credit.
Exact savings for each household will be dependent on the cost of their current deal, how much energy they use, and whether they use both gas and electricity. On average it’s been estimated that the typical customer, on a dual fuel deal of gas and electricity, will save around £75 a year. Ofgem believes the price cap would save consumers a total of around £1 billion.
The price cap moving forwards
Ofgem plan to update the level of the cap in April and October every year in order to account for the latest costs of supplying gas and electricity.
The price cap is a temporary measure, to be in place until 2023 at the latest. This is designed to allow Ofgem time to implement further reforms to make the energy market more competitive, enabling it to work more effectively for all consumers.
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