Renewed energy price cap shouldn’t deter energy customers from finding cheaper deals
Comparethemarket.com reminds customers there are currently 191 energy tariffs on the market cheaper than the £1,042 price cap.
The Government has extended its energy price cap until the end of 2021 – a move it says could help as many 15 million households to make savings on their gas and electric bills.
The announcement follows a recommendation by energy regulator Ofgem to cap the price level at £1,042 for typical users paying by direct debit between October 2020 and next March.
But while the energy price cap has protected customers from paying too much on the tariff they’re on, the Business and Energy Secretary Alok Sharma admitted that “switching supplier to find the best value deal is still the best way to save on bills”.
191 tariffs cheaper than price cap
The Department for Business, Energy & Industrial Strategy (BEIS) says the cap has so far saved customers a collective £1 billion a year since its introduction at the start of 2019.
It claims up to 11 million households are saving a typical £75-£100 annually on default energy tariffs, while a further 4 million with prepayment meters will also be protected from January.
As Peter Earl, Head of Energy at comparethemarket.com explains, however, while the energy price cap shields those least likely to hunt for the best deals, it can lull other customers into thinking they’re being guaranteed the best deal on the market.
“It’s encouraging that the government recognises that the best way for people to save on energy bills is by switching,” Mr Earl said. “A big problem with the price cap, however, is that since it was introduced in 2019 the number of people switching energy supplier has declined – and as a result, millions of households on standard variable tariffs are potentially paying hundreds of pounds more than they could be for an essential utility.
“There is a real risk that the British public interpret the government’s extension to the price cap as an endorsement that the cap is an affordable price to pay for energy, when it reality it should be considered the absolute ceiling that people pay.
“With millions more people at home due to widespread regional lockdowns and an increase in the number of people working from home, it is important for households to shop around for a better value energy deal to avoid a bill shock this winter.
“There are currently 191 energy tariffs on the market cheaper than the £1,042 price cap, and as the temperature drops and people turn the heating up a notch or two, switching to a competitively priced one or two year fixed-rate deal is an effective way for households to lock in a cheaper energy deal.”
Cap offers fair – not best – price
Echoing the sentiments of both Mr Earl and Alok Sharma, Ofgem’s chief executive Jonathan Brearley made it clear that, while those protected by the cap are paying a “fair” price, they can “reduce their energy bills further by shopping around for a better deal.”
The BEIS reports that a total of 2.8 million electricity and 2.1 million gas customers switched supplier in the first six months of 2020, but more than half of all customers remain on standard variable (SVT) or default tariffs.
In the absence of a cap, these customers “would still likely be paying excessive charges for energy use”.
Peter Earl points out that fewer people have switched energy suppliers compared to last year – a 7% year-to-date downturn – a downward trajectory that correlates with the introduction of the price cap.
He adds: “One of the unintended consequences of the price cap appears to be households being lulled into a false sense of security by wrongly believing that the cap is a ‘good’ price to pay for energy.
“The unfortunate reality for millions of energy customers on a supplier’s default or standard variable rated tariff is that their energy bill is likely to be hundreds of pounds more expensive than the cheapest fixed-rate tariffs available to switch to.”