Fuelling Fairness: Five years of the energy price cap

In January 2019, the energy price cap was introduced. It was a significant intervention for a problem policymakers had struggled with for more than a decade: the ‘loyalty penalty’. The problem was that customers who stayed with their energy supplier on a default tariff were paying significantly more than new customers who regularly switched. In 2016, the Competition and Markets Authority (CMA) estimated this costs customers £1-2bn a year. Those who switched to fixed deals saved, and those who stuck to rolling tariffs didn’t – creating a two-tier market.

It has been five years since the energy price cap was introduced; this year the future of the energy price cap is once again an important political question. Both the Department for Energy Security and Net Zero (DESNZ) and Ofgem have put possible price cap consultations on reform on the menu for 2024.

With this in mind, Octopus Energy commissioned Public First to assess the impact of the energy price cap on consumers and competition. To do this, Public First carried out a series of new expert interviews, economic modelling, and opinion research.

Our review of the five years of the cap finds:

The price cap was a successful intervention in a stable market 

It reduced consumer detriment and protected disengaged customers; It drove cost savings by forcing legacy suppliers to become more operationally efficient; and It preserved conditions for competitive pricing and switching:

The price cap fared well in the energy crisis, but its role changed

Against a backdrop of soaring wholesale energy costs, the cap safeguarded consumers by slowing the pace of price increases; It enabled government bill support to be designed and implemented quickly; but it sharply exposed the financial vulnerabilities of some suppliers.

Post-energy crisis, the need to protect loyal customers persists

As we emerge from the crisis, it’s not yet clear what will happen to prices and to switching. But there’s little to suggest that the two tier market and the loyalty penalty would not re-emerge if the price cap was removed today. Furthermore, customers agree that some form of price protection is needed.

A link to the polling tables can be found HERE and you can read the full report HERE

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