Single Variable Tariff (SVT) Price Cap
The much criticised government-mandated "price cap" for default tariffs (in truth, a price control, not a price cap - see also Energy History 2017-18) came into force towards the end of 2018 but rising oil/gas prices forced Ofgem to announce a 10% increase from early February 2019. The rise was inevitable and experts had always predicted that such increases would be necessary if oil/gas prices rose, but the public and media reaction was savage nonetheless. Here is the Evening Standard's editorial comment:
How do you turn a “Marxist” plan to cap energy bills into a pledge to help people “ripped off by energy companies for far too long”? You can’t, as 11 million unlucky households are finding out today. The energy price cap was a terrible idea when Labour’s Ed Miliband proposed it in 2013. And it was still a terrible idea when the Conservatives stole it four years later. Now everyone can see why: because it doesn’t work. Announcing a cap doesn’t make gas or power any cheaper. It lasted only three months and goes up by 10 per cent today, taking average bills on variable tariffs to £1,254 a year — a total £1.71 billion rise. In August it will change again. That’s not a cap — it’s a flexible price mis-sold to voters. The better way to keep energy bills low is to shop around in a competitive market. It’s no surprise, then, that the regulator, Ofgem, told consumers to do just that when it broke news of the Government’s useless gimmick this morning.
Giles Wilkes subsequently published an entertaining account of how the price cap came to be announced in the teeth of strong opposition from the Chancellor of the Exchequer, the Energy Department and the Energy Regulator.
Competition Casualties, cont'd
Criticism of Ofgem continued in early 2019 as further recent new entrants proved nonviable - and Ofgem's 'safety net' meant that their customers, who had been attracted by impractically low tariffs, were forcibly moved to larger suppliers, who had to, in effect, bale out their previous competitors.
Projecting the energy transition
Martin Cave, Ofgem's relatively new Chair, delivered an interesting speech early in 2019 forecasting amongst other things:
- Local markets developing, for instance in cities.
- More competition in transmission networks
- New financial tests to reduce the rate of supplier failure
- The growth of intermediaries (who may need to be regulated) to help customers navigate a complex market, which will include ...
- Tariffs varying significantly according to the time that energy is used.