Energy prepay cap to save customers £80, announces Ofgem

Media caption,
Chief executive of Ofgem Dermot Nolan explains the reason for the energy price cap on Radio 4's Today

Four million customers on prepayment energy meters are expected to save around £80 a year after a price cap was announced by energy regulator Ofgem.

The temporary price cap, which comes into effect in April, was one of the measures recommended by the Competition and Market Authority after its two-year investigation of the energy market.

It will be updated every six months and is expected to stay until 2020.

That is when the roll-out of smart meters is set to be completed, which will benefit prepayment customers who have a smaller choice of tariffs available to them.

However, there have been some concerns about the roll-out of the smart meter programme.

'Vulnerable circumstances'

Many prepayment meter customers pay through token or coin operated machines. Some of these customers may have had difficulties paying in the past. Others include some tenants whose landlords have the meters installed in properties.

Competition among suppliers for prepayment customers is less developed than for those who pay by direct debit, cash or cheque, according to Ofgem. This means that there are fewer tariffs available and they are generally more expensive.

Ofgem chief executive Dermot Nolan said: "We want all consumers to enjoy the benefits of a more competitive energy market, regardless of their circumstances.

"Customers who prepay for their energy are denied the best deals on the market available to those using other payment methods.

"They are also more likely to be in vulnerable circumstances, including fuel poverty. This temporary cap will protect these households as we work to deliver a more competitive, fairer and smarter market for all consumers."

Figures published in August last year showed that prepayment customers paid an average of £220 a year more than those on the cheapest deals, so the £80 reduction has been given a guarded welcome by consumer groups.

Gillian Guy, chief executive of Citizens Advice, said: "This cap should stop some of the poorest households paying over the odds to heat and light their homes.

"It will help millions save money but action shouldn't stop there.

"The government has rightly expressed concern that loyal customers on standard tariffs are paying over the odds for their gas and electricity.

"It could help more struggling households, including low-income pensioners and families, by extending this cap to people eligible to receive the Warm Homes Discount."

Prepayment principles

At the end of December 2015, there were four-and-a-half million prepayment electricity accounts and three-and-a-half million gas accounts - representing 17% and 15% respectively of all accounts in the UK.

Lawrence Slade, chief executive of Energy UK, which represents the major suppliers, said: "The industry is committed to ensuring the remedies work to help all consumers, including those on prepayment meters.

"Only last October, the industry launched new prepayment principles to provide improved safeguards for prepayment customers, showing further commitment from the industry to supporting the most vulnerable consumers.

"These principles, coupled with the rollout of smart meters, will improve the experience of prepayment customers and give customers more control over their energy usage and bills, allowing them to both save energy and money."