Price cap will apply to most common tariffs
Price cap could help end rip-off energy prices
MANCHESTER: Prime Minister Theresa May said yesterday she would impose a price cap on the energy market to help millions of households, sending stocks in the country’s largest energy provider, Centrica to a 14-year low. May had proposed a price cap on the sector earlier this year, the biggest market intervention since it was privatized almost 30 years ago, but the plan was thrown into doubt after her ruling Conservative Party lost their parliamentary majority in an election in June.
Needing to win back voters who are struggling with rising prices, she returned to the theme yesterday. Energy bills have doubled in Britain over the past decade to an average of about 1,200 pounds ($1,500) a year, putting the biggest providers in the sights of politicians.
“While we are in favor of free markets we will always take action to fix them when they are broken, we will always take on monopolies and vested interests when they are holding people back,” May told the Conservative Party’s annual conference. “One of the greatest examples in Britain today is the broken energy market,” she said, adding that a price cap would help end “rip-off energy prices”.
Britain’s energy market is dominated by the so-called big six providers-Centrica’s British Gas, SSE, Iberdrola’s Scottish Power, Innogy’s npower, E.ON and EDF Energy, which account for about 85 percent of the retail electricity market.
The announcement wiped more than 900 million pounds off the value of the two British listed companies Centrica and SSE alone. Shares in Centrica hit a near 14 year low of 177.8 pence per share. Shares in SSE, Britain’s second largest supplier, fell around 4 percent.
SSE said it would look carefully at the proposals. “SSE believes in competition not caps, so if there is to be any intervention it should be simple to administer, time-limited, and maintain the principles of a competitive energy market to best serve customers’ interests,” the company said.
No one from Centrica was immediately available to comment. May’s office said the cap would apply to so-called standard variable tariffs (SVTs) which are basic rates that energy suppliers charge if a customer does not opt for a specific plan.
Around 70 percent of households are on SVTs and data published by energy regulator Ofgem in December showed 91 percent of SSE’s customers were on a SVT, along with 74 percent of Centrica’s British Gas customers.
Ofgem said SVTs offered by the big six in August were on average almost 320 pounds ($424) per year more expensive than their cheapest tariffs. Earlier this year the government ordered Ofgem to act on the issue of high bills and the regulator is in the process on consulting on a measure which would impose a price cap for the most vulnerable households.
Prime Minister May’s office said Ofgem would be responsible for setting the new cap which would be a temporary measure kept under review. British business groups criticized the cap, with blue-chip lobby group the CBI calling it “an example of state intervention that misses the mark.”
However the challenger small energy firm OVO Energy, which has around 800,000 customers, welcomed the decision. “This intervention will stimulate innovation and promote efficiency that will benefit millions of customers,” said Stephen Fitzpatrick, OVO chief executive. -Reuters