Prime Minister’s revived price-cap plan rattles Big Six energy providers

Prime Minister May has vowed once more to impose a price-cap on household energy providers.

In a speech at her Tory party’s annual conference which rattled the corporate cages of the Big Six British energy providers, she revived a manifesto pledge which many observers thought had died when the Conservatives lost their Westminster majority in this summer’s election.

May said: “While we are in favour of free markets we will always take action to fix them when they are broken, we will always take on monopolies and vested interests when they are holding people back,”

“One of the greatest examples in Britain today is the broken energy market,” she said, adding that a price cap would help end “rip-off energy prices.”

But there was very little detail in May’s speech about how many people the cap will cover and whether it will be an absolute cap or a limit on price rises.

May’s announcement put the skids under Big Six energy company shares prices, with Scottish/British Gas-owner Centrica closing down more than 6% while SSE closed down more than 3.2%.

A spokesman for SSE – the Perth-based utility company – said: “We will look carefully at what is proposed by government and detailed consultation is required to help avoid any unintended consequences. 

“We believe in competition not caps, so if there is to be any intervention it should be simple to administer, time-limited, and maintain the principles of a competitive energy market to best serve customers’ interests.”

Stephen Fitzpatrick
Stephen Fitzpatrick

However, the move was warmly welcomed by Ovo Energy – the independent provider which this year has been acclaimed as Energy Supplier of the Year, for the third year running at the uSwitch Energy Awards.

Stephen Fitzpatrick, Chief Executive of OVO Energy, said: “It is clear that 18 years of light-touch regulation has not delivered an energy market that works for most consumers. This intervention will stimulate innovation and promote efficiency that will benefit millions of customers. 

“We envision that the cap will set a ceiling on retail prices based on underlying market conditions, allowing headroom for efficient companies to operate profitably.”

“In an ideal world we wouldn’t need a price cap but it is now the most effective way to ensure customers are treated fairly and are not overcharged for their energy. I hope that the industry will adapt quickly and that price regulation will not become a permanent feature of the energy market.”

Proving energy to nearly one million customers, Ovo was set up by Fitzpatrick to be ‘fairer, greener and simpler for all’. It ranked as number one in the 2015 and 2016 Which? energy customer satisfaction surveys.

He added: Most energy companies are infuriated by what they see as government ‘meddling’ in their business, and breathed a sigh of relief when the government’s proposed price cap appeared to be watered down in the Queen’s speech.

“But the issue is not going away. Indeed political attention is ramping up and 192 backbench MPs have called for the government to deliver on its manifesto commitment and with winter fast approaching and energy bills going up by almost 10% this year, we could be facing an ‘October revolution’.

“Despite countless reviews and proposed reforms, between 60% and 70% of consumers continue to be overcharged, underserved and taken for granted by their energy supplier. It is clear that competition, in its current form, is neither serving customers nor incentivising energy companies to invest for the future.

“Poor customer experience was what drove me to set up OVO in 2009. I believed we could use technology to make energy cheaper, greener and simpler for everyone, and still do.

“We set out simple tariff structures and offered a low standard variable tariff. That was considered innovative in 2009, but it should not be in 2017. We should have moved on; it is amazing to me that we are still in a debate about energy pricing.

“With steady advances in generation and storage technologies, we need to be looking beyond traditional retail models to a future of integrated energy services.”

Citizens Advice Scotland welcomed the UK government’s plan to put a price cap on energy bills.

Kate Morrison, Energy policy manager at Citizens Advice Scotland’s Consumers Futures Unit, commented: “It’s no great surprise that the UK Government has felt the need to intervene in the energy market. Trust in the market is low and prices have continued to rise with a lack of transparency. 

“This is a particular issue for Scottish consumers, given our cold wet climate and high fuel poverty rates. We would welcome any action that makes bills more affordable.”

But Neil Clitheroe, head of Scottish Power’s Retail Energy division, said: “A price cap will not encourage more customers to participate in the energy market. 

“Three years ago we proposed that SVT be abolished and all customers moved to fixed priced tariffs.  This wasn’t adopted, but unlike some major suppliers we have not sat on our hands. Instead we have engaged with our customers every day and are heading towards two-thirds not on standard tariffs. 

“This is the lowest of the major suppliers by some distance, especially when compared with the biggest three companies, who have close to 10 million customers between them on standard tariffs.

“The government should be bolder, and abolish standard variable tariffs entirely. We have long argued that just as you insure your car and home every year and go to the market for the best deal, so every energy customer should engage regularly with the market.  With millions of customers prompted to look for the best deal, competition would flourish.”

Lawrence Slade, Energy UK chief executive, said: “The energy market is changing at a rapid pace – there are now over 50 suppliers to choose from and the Energy Switch Guarantee, launched by the industry, means it is simple, speedy and safe to switch, with many customers able to save much more than £100 in minutes by checking their tariff.

“Over three million consumers have switched already this year and the number of standard tariffs have fallen by almost a million in the last six months. It is important that we do not risk halting this growth of competition and engagement in the market. 

“One of the major contributors to high energy bills, especially over winter months, is the poor quality of our housing stock.  As Ministers have highlighted earlier this week, energy efficiency measures have helped to keep bills down – to around the same level we were paying nearly a decade ago.

“Making our homes energy efficient would be the most effective way of reducing bills for customers over the long term – which is why we are calling for the government to make it a fully-funded national infrastructure priority.”

Carolyn Fairbairn, CBI Director-General, commented: “Affordable energy matters for everyone and particularly for the most vulnerable.

“However, this announcement is an example of state intervention that misses the mark. Market-wide price caps are not the best answer. 

“Suppliers are already acting, providing support to those on pre-payment meters, and continued action to phase out standard variable tariffs would benefit a wide range of consumers, including those on the lowest incomes.”

5 Oct 2017

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