UK energy experts poor cold water on Tories ‘one size fits all’ price-cap plan

Energy experts from academia and the private sector have both poured cold water on the prospective plan by the Tories to include a cap on household gas and electricity bills in their manifesto for the British general election.

The head of one of the British Six energy providers – Scottish Power – has already attacked the proposal and today London-based energy consultancy Baringa Partners joined in.

Ryan Thomson, Partner at Baringa Partners, said: “Since becoming leader of the Conservative Party, Theresa May has focused on the fair treatment of all customers in markets that dominate our day-to-day life.

“But a price cap is not the right way to increase competition in the energy market or create savings for customers.

“The government currently measures competitiveness in the market by the number of customers switching supplier. But a price cap might actually increase the number of customers who remain with the Big Six, as it would reduce the difference in price between suppliers and therefore remove the incentive to switch.

“It is concerning that switching has become the ‘go-to’ measure to judge the competitiveness of the market. The issue is much more complex than this. Customers shouldn’t feel they can only get a good deal by changing supplier every year.

“In addition, 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.”

Meanwhile, Frederik Dahlmann, of Warwick Business School – where he is Assistant Professor of Global Energy and researcher on renewable energy – accused the government of ‘muddling through’.

Dr Frederik Dahlmann said: “Energy remains a political football with governments of all flavours unsure about what kind of energy system they want and who should pay for it.

“This lack of coherence in long-term energy policy has been evident for many years and while companies and consumers carry on muddling through, no-one is really satisfied. 

“The typical eye-catching pre-election calls don’t help with establishing a more considered, long-term vision that satisfies the need for energy security, affordability and sustainability.

“Energy is far too important to be left entirely to the markets, at the same time it is economically inefficient and undesirable to run it from the Department of BEIS.

“As the industry is undergoing significant change the calls for greater government intervention may lead to short-term benefits for select consumer groups, but risks increasing the overall costs of the system and locking it into inefficient structures in the long-term.

“A more sensible suggestion would be the setting up of a task force consisting of consumer and industry representatives as well as MPs. This panel would have the task of devising a credible and feasible long-term policy and outline an industry framework that most can agree to.”

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