Whatever form the price cap on standard domestic energy bills announced by the Prime Minister takes, consumers will have to pay more for their energy in the coming years, according to industry experts.
Robert Buckley, Director at the Cornwall energy consultancy, explained: “If suppliers react to the cap by levelling up their prices through removing or re-pricing cheap fixed deals, many millions of engaged householders could see their bills rise significantly.
“If they respond by tracking the cap for their wholesale costs, further innovation such as the fixed price tariffs that saved those engaged consumers money in recent years, will not happen. Choice and variety will diminish and not increase, and the spread of tariffs could tighten.
“Before inflation, cost increases of £50 per household for policy and networks are locked in over the course of the next Parliament, and at the moment wholesale prices have rebounded from last year’s lows.
“Administering the price cap therefore risks being tantamount to signing off bill increases for the industry.
“We have yet to see the full impact from the Competition and Markets Authority’s two year investigation and the industry itself has come up with proposals to make the market work better for customers that should be looked at very carefully.
“Capping prices may make short-term political sense but, in the long-term, could undermine the market, and may open the door for continuing and deepening interventions in the future.
“We believe there are other interventions that are likely to have fewer unintended consequences and would bring better deals for consumers.”
The Scottish Big Two utilities – SSE and Scottish Power – are against any form of energy cap.
And Josh Hardie, CBI Deputy Director-General, said: “Putting customers at the heart of the energy market is important for everyone.
“The Competition and Markets Authority’s thorough two year investigation identified low levels of consumers switching energy providers as a challenge, and put forward a range of recommendations to address this. It is important that these measures bed in before looking to further interventions.
“A major market intervention, such as a price cap, could lead to unintended consequences, for example dampening consumers’ desire to find the best deal on the market and hitting investor confidence.”
Ryan Thomson, Partner at Baringa energy consultants, added: “We must distinguish between customer groups who are less informed and less able to access the best deals on the market – for example, those without internet access or bank accounts – and those who are well informed but choose not to engage in the market.
“A one size fits all solution like a fixed price cap will not address this.
“To improve competition, political parties should look beyond headline-grabbing initiatives and recognise what more energy suppliers and the regulator can and should be doing. For instance, suppliers could introduce better measures of client satisfaction. These could include use of smart service products to boost energy efficiency and reduce overall customer spend, without switching.
“The energy market is changing and bolder measures are needed to anticipate what it could look like in five years’ time.
“For example, non-energy players like car manufacturers could provide the electricity needed to power electric cars. It is easy to be short-sighted with an election just around the corner, but long-term thinking is needed to ensure customers get the best deal.”
Lawrence Slade, chief executive of Energy UK, commented: “The prime minister’s announcement effectively risks giving up on competition at a time when we need engaged consumers more than ever.
“Change is happening at a rapid pace in the energy sector – with ever-increasing levels of engagement, more choice and improving customer service. Further intervention risks undermining so many of the positive changes we are seeing in the market which are delivering benefits for consumers.
“The energy sector is passionate about the essential service it provides and stands ready to work with government and the regulator to ensure the energy market works for all customers. We know more needs to be done and are committed to this.
“However the solution is not to distort the market as a whole but see through the market reforms, allow competition to drive innovation and benefits for customers, while ensuring that there is targeted support for those most in need.”
For the SNP, Callum McCaig, Business and Energy spokesman, warned that any potential savings for consumers from an energy price-cap would be ‘dwarfed by the devastating cuts that the Tories are making to family budgets more generally.’
He said: “This is a screeching U-turn from the Tories and is an admission of their complete failure in government to make the energy market work for families.
“And with reports that even Theresa May’s own Energy Secretary does not support this policy – and the fact they can’t even guarantee that prices won’t continue to rise – the chances of a Tory government making any meaningful difference to household energy prices are slim to none.”
And Justin Bowden, GMB National Secretary, warned OFGEM that it would have to distinguish between power company profiteering and the resources needed to generate jobs and pay for the infrastructure to maintain power networks if an energy price-cap is introduced.
He said: “In all the predictable froth about competition and profiteering in what are natural monopolies, nobody should lose sight of these facts.
“If the regulator gets the balance wrong, leading to cuts to jobs or terms and conditions as a result, GMB will not hesitate to defend UK jobs and fair pay and conditions.”
New switching figures show 1.8 million switches in 2017
The latest switching data published by Energy UK shows that 501,312 customers switched supplier last month – a 14 per cent increase compared to April 2016.
This is the first time there has been two consecutive months where switching has been above 500,000.
As competition intensified in the last month, the numbers switching from larger suppliers to small and mid-tier suppliers represented three in ten (31 per cent), a total of 155,558 customers.
This latest data brings the total number of customers who have switched supplier this year to over 1.8 million.
An Energy UK spokesman said: “Switching has been increasing year-on-year for the past three years and today’s figures continue to show more and more consumers engaging with the energy market. Further intervention would undermine many of the positive benefits that competition is delivering for consumers – including driving innovation, increasing choice and improving service.”