A recent report by Which? has shown that not all customers will benefit from the government’s new energy price cap.
Ofgem, the government regulator for gas and electricity, has introduced a price cap of £1,332 a year. The price cap “will save households £75 a year on average”, according to Ofgem. However, the energy price cap “will not reduce bills for customers on three in ten dual fuel tariffs”.
The price cap will be put in place to limit the “daily standing charge and unit rate for gas and electricity if you’re on your supplier’s default tariff”. This means that the average customer would pay about £1,136. However, there are other additional factors, including usage and the region you live in, that could affect how much you end up paying. The price cap ranges from £1,110 to £1,173 across the UK, with Yorkshire the most affordable and the South West the most expensive regions respectively. Of course “the actual amount paid by consumers will still depend on their energy consumption” because it is the unit charge being measured. The estimates provided in this report are based on the average energy consumer.
Customers who aren’t paying their bills with direct debit could also be charged an additional £83 more per year. According to Which?, this extra charge is because “it costs firms more” to have non-direct debit customers.
Ofgem will reassess the cap every six months and therefore will be able to increase the cap if costs increase. The cap is currently in place until 2020, with the possibility of being extended until 2023.
The energy price cap will “force many of the biggest energy firms to reduce the prices of their default tariffs”. Which? reports that Scottish Power’s customers will save the most money – about £120 a year. While all of the Big Six energy providers will be forced to lower their default tariffs, Ovo Energy’s current default price already comes in at a price below the cap.
However, it’s important to keep in mind that the price cap won’t necessarily guarantee you a lower price. Which? has found that “fixed 98 energy deals that currently cost less than the proposed cap”, and by switching to one of these deals you could be savings an impressive £258 in a year.
There are also fixed dual-fuel deals that won’t be affected by the current price cap proposal. These fixed price deals could end up costing the average energy customer £196 more than the price cap. It has even been estimated to be in your interest to pay an exit fee to leave this type of deal in favour of the default tariff as you’ll end up saving more money in the long run.
One downside of the proposed energy price cap is that the Big Six firms “might struggle to offer cheap deals if they’re not efficient enough after the cap is in place”. Therefore, these customers should check if they would benefit from switching over to the default tariff.
Alex Neill, managing director of home products and services at Which?, said: “The price cap is only a temporary fix, what is now needed is real reform to create competition, promote innovation and improve customer service. If you are unhappy with your current energy provider, you should look to switch now to another supplier and potentially save almost £400 a year”.
The research and report published by Which? stresses to consumers the necessity of searching for the best deals and not becoming complacent with your energy provider. Paying an exit fee might seem like an unnecessary expense, but switching to a different deal or new provider could end up saving you hundreds of pounds.