The energy price cap is set to be introduced in December this year, the regulator has confirmed in an update.
It’s predicted the price cap will help more than 11 million consumers who pay for an expensive standard variable tariff by reducing their bills by up to £100 per year.
It follows on from a cap which was introduced last year for consumers paying with a prepayment meter.
The price cap will be brought in at the end of the year to those with a standard tariff
In the update Ofgem said it is proposing that the cap be updated every six months in a similar way to the current price cap, which applies to those with a pre-payment meter and those receiving the warm home discount.
It says this will ‘protect consumers from unnecessarily volatile or uncertain prices, and from the administrative costs of price changes’.
The level of the cap still needs to be confirmed but some other details have already been published. It will be a temporary cap, in place until 2020 but may be extended until 2023 if needed.
A decision still needs to be made over how the cap will apply to people who don’t pay for their energy via direct debit, such as those who pay quarterly.
Consumers without a standard meter, such as those who pay via Economy 7 or who have restricted meter tariffs, will also have different caps set which are yet to be decided upon but likely to be based on their consumption.
Ofgem also confirmed in the update that it wouldn’t support all renewable energy tariffs being automatically excluded from the cap and only those that are significantly more expensive to provide would be exempt.
In the latest update Ofgem said the retail energy market is only working for those who actively shop around for a better price and switch and it is not working well for consumers who remain on their supplier’s default tariff.
It believes the price cap will change this, but some experts have warned that the price cap may not be the answer. For one thing, each of the big six suppliers have in turn announced price rises that will beat any price cap by coming into force before it does.
Secondly, even though a price cap will be cheaper than the current price of a standard tariff, it’s likely not to bring down the cost of energy tariffs to the cheapest on the market, and these will still only be reserved for those who are actively switching.
The cap is only temporary and set to last until 2020 but can be extended beyond that
Peter Earl, head of energy at Comparethemarket, said: ‘The price cap legislation will not fix the problems in the energy market. At best, it is a short-term solution which could see some households on the worst value tariffs pay a little bit less for their energy.
‘At worst, it could simply turn people off ever looking at an energy bill again. The danger is that energy customers are lulled into staying with one provider rather than shopping around in the mistaken belief that the cap will level the playing field.
‘The energy price cap looked like it would bring about the end of the Standard Variable Tariff. Indeed, the days of the SVT did look numbered, with some of the largest suppliers in the market promising to scrap them for their customers.
‘However, these have simply been replaced by ‘default tariffs’ and, given the number of price hikes announced by energy suppliers in the past few months, it could be that providers may already be inflating prices in preparation for the incoming cap. Those who don’t shop around could still be on uncompetitive tariffs.
‘The energy market needs far more wide-ranging reforms to make it easier to understand for consumers, with simplifying bills included in the improvement. Many people are daunted by the complexity of the information they get from providers and are put off switching. For a sustainable, functional market, consumers need to be engaged and encouraged to move on to cheaper, fixed tariffs and save hundreds of pounds a year.’
If you’re still paying your provider’s standard tariff it’s almost certain you’re overpaying. This is especially significant at the moment because in the next two weeks four of the Big Six energy providers will be bringing in price hikes. Eon’s is already in place, and SSE’s will come in on July 18th.
This means energy customers with any of the Big Six will see their bills rise this year, if they’re paying the standard tariff.
Even if you’re not with one of the big providers, your bills may have still risen this year as a number of smaller providers have also increased prices.
Add to this the fact 100 fixed-term energy price tariffs are due to end before the end of June and some consumers could be faced with bumper price hikes.
Earlier this week we reported that the average hike for customers with a fixed-rate tariff ending by the end of June is £166 a year, if they do nothing.
While for some it is much higher. Customers with Go Effortless Energy will see the biggest spike of £401.30 on average when the tariff ends in June. While those with Npower will see their bills rise by £399 per year, the research from uSwitch revealed.
The number one way to avoid paying more for your energy, especially if your bills are about to rise, is switching to a fixed-rate tariff. You can quickly find out what tariffs are available to you, and how much they will cost, by using a comparison website such as our own postcode comparison tool.
Even if your current fixed-rate tariff hasn’t ended yet, Ofgem’s rules state that customers can switch without paying a penalty fee 49 days before the date it is due to end.
Join our Energy Switch Club to beat the suppliers at their own game
All of the Big Six energy giants have announced eye-watering price hikes in recent months pushing up families’ annual energy bills up to a an eye-watering £1,151.
But households can, and should, fight back by upping sticks and moving to a better deal.
This is Money has joined forces once more with energyhelpline to launch a new collective switch to help readers save money on energy bills.
The Energy Switch Club allows our readers to team up with thousands of other people and use their collective power to negotiate a unique offer on their energy bills.
Our last collective switch earlier this year saw over 73,000 people sign up, allowing us to negotiate and exclusive tariff that saved the average switcher £255.
This special deal turns the table on energy firms – rather than households having to hunt out a better price, they will be competing to offer you one.
You can register with just a few details here and once we have picked the winning deal we will deliver a unique tariff straight to your inbox on June 20.
If you decide to switch and save money you can. If you decide it is not for you then you do not have to take it.
- Not interested in taking part but want to search for a better deal? For full details of how to switch your provider and where to find the best deals check out This is Money’s switching guide.