The Competition and Markets Authority (CMA), the industry watchdog, has recommended to the energy regulator Ofgem that prepayment meter (PPM) consumers continue to be protected beyond next year.
The prepayment price cap was set until the end of 2020, and currently stands at £1,242/year – based on the typical use of a dual-fuel consumer. The watchdog found out (using Ofgem’s methodology) that every PPM customer pays £1 more each week.
The price cap applies to every UK energy supplier, except three – those being green power suppliers Ecotricity, Green Energy UK, and Good Energy. These three companies were granted permanent exemptions by Ofgem for their corresponding standard variable tariff (SVT) price caps.
The PPM price cap protects customers paying for their energy in advance against exorbitant fees, since they are unable to change suppliers easily, unlike other fixed deal consumers.
The CMA asked Ofgem for an extension of the PPM price cap following a review conducted by the watchdog, in light of the the delays in the smart meter rollout campaign. That campaign has now been extended for a few years beyond the original deadline of 2020.
It also revealed that the standard tariff price cap set by Ofgem utilised more detailed and current figures compared to CMA’s 2016 data.
The watchdog therefore applied the methodology recently introduced by Ofgem, which resulted in the £1-per-week increase for prepayment customers.
The CMA said in a statement that the adjustment was made to ensure that the price cap applies to the current market. It also fosters an ongoing competition between suppliers, giving customers a more extensive choice.
The watchdog further stated that if the price cap were set too low, it might reduce consumer choice and competition – since it could also lead to suppliers exiting the market. It believes that prepayment customers are still adequately covered despite the adjusted price cap level.
The amendments are set to be implemented on 1 October 2019, which will be recalculated to consider the six months’ worth of change in the market.
Ofgem agrees with CMA’s decision, stating that the adjustment reflects the actual cost for PPM customers. It ensures fair pricing and prevents overcharging according to the regulator.
The regulator has permanently exempted three clean energy providers – Ecotricity, Green Energy UK, and Good Energy – from the price cap applying to standard variable tariffs (or SVT’s). It means the suppliers will be able to charge customers a higher price compared to the SVT price cap, but the reason behind this decision is that these firms derive their power supply from renewable energy sources.
Along with the cap for PPM customers, suppliers are expected to observe the price cap set at £1,254/year for dual-fuel standard variable consumers.
The SVT price cap exemption to the three renewable energy suppliers mentioned above follows similar temporary measures that should demonstrate three points. Firstly, consumers should be the ones to choose their SVT tariff. Secondly, renewable energy production and generation should be adequately supported, and this support needs to be significantly more than energy from obligations, subsidies, or any mandatory mechanism applied. Lastly, since the tariff directly promotes renewable energy, the cost of supplying power by the licensee needs to be higher than the tariff price cap.
An Ofgem spokesperson said the three energy providers presented enough evidence that they meet the criteria during the application process. The initial assessment prompted the creation of the temporary exemptions, granting the regulator time to investigate the evidence thoroughly, and obtain and assess additional proof as necessary.
After a full evaluation, Ofgem will implement longer lasting exemptions at a later date.
Good Energy CEO and founder, Juliet Davenport, recognises Ofgem’s decision as an acknowledgment of the supplier’s effort to provide clean and green energy. She cited the company’s genuine support for clean technologies and the growth of renewables. She also mentioned the active role customers play by choosing to avail themselves of a renewable tariff.