Top Qs
Timeline
Chat
Perspective
Energy price cap in the United Kingdom
Wholesale price of Gas and electricity in UK From Wikipedia, the free encyclopedia
Remove ads
The energy price cap is a price cap on the wholesale price of gas and electricity in the United Kingdom.
History
Summarize
Perspective
In the run-up to the 2017 general election, Prime Minister Theresa May made a commitment that the Conservative Party manifesto would include a policy to apply price controls to energy bills. May wrote in The Sun newspaper that "the energy market is not working for ordinary working families" and that if she was re-elected she would introduce a price cap policy that would save households up to £100 each.[1]
There was pressure from other members of her Cabinet to change the policy after the election result forced May to form a minority government,[2][3] but also pressure from other MPs to go ahead, including an open letter signed by 192 MPs, over 70 of whom were Conservative MPs.[4] The Prime Minister reiterated her commitment to her flagship energy policy in a speech at the Conservative Party Conference in October 2017.[5] It was announced that the price cap, or "safeguard tariff", would be implemented by Ofgem and would cap prices for electricity and gas for the 11 million households on standard variable tariffs.[6]
Default tariff price cap: Domestic Gas and Electricity (Tariff Cap) Act 2018
The Domestic Gas and Electricity (Tariff Cap) Bill 2018 had its first reading on 26 February 2018, following a period of pre-legislative scrutiny from the cross-party Business, Energy and Industrial Strategy Select Committee.[7] The legislation completed its passage through Parliament on 18 July 2018 and received royal assent the next day as the Domestic Gas and Electricity (Tariff Cap) Act 2018 (c. 21).[8] This Act stipulated that the price cap would be in place from the end of 2018 until 2020, when Ofgem would recommend whether the cap should remain on an annual basis up to 2023. Ofgem would also review the level of the cap at least every 6 months while it was in place.[8]
In September 2018, Ofgem proposed that the initial level of the "default tariff price cap" would mean that energy suppliers would not be allowed to charge more than £1,136 a year for a typical dual fuel customer paying by direct debit, and that this would save the 11 million British households on default or standard variable tariffs an average of £75 a year on their gas and electricity bills.[9]
The price of the cap is set for each unit (kWh) of gas and electricity used, plus a daily standing charge, so that it varies with consumption. Ofgem designed the cap level to take into account several factors: wholesale energy costs (how much a supplier has to pay to get the gas and electricity to supply households with energy), energy network costs (the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country), policy costs (the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy), operating costs (the costs incurred by suppliers to deliver billing and metering services, including smart metering), payment method uplift allowance (the additional costs incurred through billing customers with different payment methods), headroom allowance (allowing suppliers to manage uncertainty in their costs), the return on suppliers' investments, and VAT (5% tax added to the level of the tariff).
In November 2018, Ofgem finished its consultation and published its decision that the first level of the cap would be set at £1,137 a year for a typical direct debit dual fuel bill in November 2018.[10] This came into force from 1 January 2019. At its initial level, the cost of electricity for those on default tariffs was capped at 17p per kWh, and gas was capped at 4p per kWh. Dual fuel users would pay no more than £177 a year for the standing charge, electricity-only users would pay no more than £83, and gas users £94.[11]
The first change in the level of the price cap was announced in February 2019, with the cap rising by £117 for typical direct debit dual fuel bills from 1 April 2019.[12] In October 2020, the government extended the energy price cap by a year, until at least the end of 2021.[13]
In the 2020s, several consumer-facing suppliers went into liquidation including Bulb Energy, Avro Energy, Green Supplier and Orbit Energy.[14]
In August 2022, Ofgem announced that the price cap would be reviewed every three months instead of every six months, in reaction to wholesale price volatility. Thus the review in October 2022 would be followed by another in January 2023.[15]
Energy price guarantee: Energy Prices Act 2022
In August 2022, the Labour Party and the Liberal Democrats called for the energy price cap to be "frozen" to reduce the cost of living.[16][17] The Green Party announced plans to nationalise the "big 5" energy suppliers.[18]
In September 2022, the Truss ministry announced plans to freeze the price cap at an "energy price guarantee", with the government paying for the remainder of the cost.[19][20] The policy was announced as part of the September 2022 mini-budget, where initially the Government did not seek the advice of the Office for Budget Responsibility.[21] Initially, the price cap had been announced to last for 2 years, but later this was reduced to 6 months.[22]
The Herald claimed that energy bills in Scotland would be 40% higher than in "the rest of the [United Kingdom]", but a Channel 4 fact check criticised the paper for not showing the working behind the analysis.[23][24]
At the time, high energy prices were the largest contributor to inflation.[25] At the same time, the Scottish Government announced that while it did not have the power to legislate for a "freeze" to the cap, it would introduce legislation to support tenants, including freezes to rent and rail fares.[26]
In March 2023, Jeremy Hunt announced an increase of the upper bound of the price cap by 20%.[27] At the time, this increase was expected to occur in April, but this was delayed to June 2023.[28]
The price cap was a policy that only applied in Great Britain, because Northern Ireland has a separate electricity grid from Great Britain.[29] Arrangements were made for an "equivalent" policy to the energy price guarantee to be implemented in Northern Ireland.[20] Suppliers of gas and electricity subsequently reduced their prices.[30]
Remove ads
Level of energy price cap and energy price guarantee
Summarize
Perspective
The average price cap has been set as follows:
Remove ads
Notes
- The government's Energy Price Guarantee (EPG) between 1 October 2022 and 30 June 2023 reduced the unit cost of electricity and gas so that a typical dual-fuel Direct Debit bill for a domestic consumer would be £2,500, rather than the energy price cap levels.[42]
References
Wikiwand - on
Seamless Wikipedia browsing. On steroids.
Remove ads