Regulator, Suppliers Gearing Up for New Ofgem Price Caps

Ofgem has recently published three sets of decisions regarding price protection for prepayment and default tariff customers, as a follow-up to the statutory consultations held in May.


As a result, millions of Brits could see their energy bills decreasing by as much as £85 annually per typical use. The decrease in price could be attributed mainly to the fall in demand, due to the strict coronavirus-induced lockdown that happened earlier this year.


The decisions


Firstly, Ofgem has decided that the prepayment meter cap will be rolled into the default tariff’s price cap. These will now collectively be known as a ‘price cap’. This means that the existing separate price cap for prepayment meters will be discontinued at the end of this year.


However, prepayment meter (PPM) customers will still have price protection in place as long as a price cap exists.


Additionally, Ofgem has published its decision to include an allowance within the default tariff price cap, that will account for costs incurred as part of smart meter installation. The ‘Smart Metering Net Cost Change’ (or ‘SMNCC’) allowance will cover the next two price caps to ensure that the financial impact of the rollout is bearable for suppliers.


Ofgem has also added a corresponding adjustment allowance to accommodate wholesale energy costs, which will cover the first price cap period, starting on the 1st of October 2020.


In the recently-published decision, the industry watchdog revealed that suppliers agreed to a six-month adjustment period, which covers the length of the first price cap.


One supplier indicated that if the Secretary of State refuses to extend the price cap, energy firms would likely struggle to recover the amounts they have projected for themselves. The supplier suggested that a set of proposals be made to help suppliers recover from the shortfall.

However, Ofgem stated that additional proposals would be considered only after the Secretary of State reveals his decision.


The regulator will be informing the public of the total impact of the price cap on consumers as soon as the October 2020 to March 2021 price cap is updated.


Ofgem maintains that these price caps are implemented to ensure that energy customers are paying a fair price for their energy consumption.

Reduced energy bills


A major energy supplier for the UK is set to slash energy bills for millions of Brits, as a result of the recent slump in demand following the COVID-19 lockdown.


Ofgem introduced the price cap last year to protect vulnerable families from unfair pricing. Energy customers – particularly those from vulnerable households – will see an £85 decrease in their yearly energy bills (based on typical use).


The coronavirus-related stay-at-home orders led to the temporary closure of several businesses across the country, and this has resulted in an estimated 7.5% price cut on standard variable tariffs (or SVTs).


The supplier believes that lower rates will be revealed as soon as Ofgem presents the new price cap, which will show the marked decrease in energy demand for the first half of 2020.


As of writing, around 11 million consumers are under a default SVT, which forces them to pay more than customers under a fixed-rate deal.

The supplier’s representative stated that a significant decrease in demand was observed during the first half of this year, even withstanding the customary fluctuations in wholesale prices. He mentioned that customers are likely to be welcoming cuts on their energy bills, which will mean even more savings as the colder months approach.


uSwitch’s Richard Neudegg stated that consumers on standard tariffs should see the upcoming change to the price cap in October lower their prices, and subsequently reduce energy bills for millions of customers.


Which?’s Harry Rose advised customers to take advantage of the upcoming changes, and shop around for better deals. He added that customers could find savings of as much as £300 per year.


As millions expect to ease the worry of energy bill payments this year, this news will benefit those who are struggling as a result of COVID-19’s  financial impact.