Ofgem plans cap on UK energy prices

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British household energy suppliers will not be allowed to charge more than an average of £1,136 per year for gas and electricity under a new price cap proposed by industry regulator Ofgem.

Ofgem said on Thursday that 11m households on standard variable and other default tariffs would save about £75 per year, based on current prices, under the proposed changes. The cap would be in place by the end of the year, it added.

The regulator was tasked by the government in July with suggesting a marketwide ceiling for what energy providers can charge. Ofgem’s price cap solution represents the biggest single government intervention in the UK energy market since privatisation in the 1980s.

Deepa Venkateswaran, an analyst at Bernstein in London, said the cap was broadly in line with expectations and was likely to soothe the worst fears of companies about curbs on their profitability.

“They’ve not been lenient . . . but I wouldn’t say it will be a complete shock to the companies,” Ms Venkateswaran said.

The share price of Centrica, the parent company of British Gas — Britain’s biggest energy supplier — rose 4 per cent shortly after the announcement.

Stephen Murray, at comparison website Moneysupermarket.com, said cheaper rates were already available so consumers should not be “lulled into a false sense of security by political soundbites”.

Most analysts had predicted the cap would be between £1,100-1,165. It is to last from January to March of next year, before being adjusted again in April to reflect changes in wholesale prices.

Dermot Nolan, chief executive of Ofgem, described it as a “tough” price cap that would “give a fairer deal to consumers on poor value default tariffs”.

He said: “Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering.”

The proposal now enters a consultation period that ends in early November, to be followed by a compulsory 56-day notice period ahead of any new cap taking effect.

How much consumers will actually save under the proposed cap will depend on current tariff, energy provider and usage.

The new cap is the latest move in efforts to level the playing field in the energy sector, which was long controlled by the big six suppliers. The market share of the incumbents has fallen from almost 100 per cent in 2011 to 78 per cent in the first quarter of this year.



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