Ofgem announces prepayment price cap

Published:  09 February, 2017

Ofgem has announced the levels of a prepayment price cap, which comes into effect in April.

The temporary price cap is one of the Competition and Market Authority's (CMA) remedies resulting from a two-year investigation of the energy market.

The cap will initially apply to over four million households that prepay for energy, mostly with traditional prepayment meters, and are among those least able to benefit from competition.

The levels of the cap vary for electricity and gas, by meter type and region. Ofgem estimates that many prepayment customers are likely to see reductions in their gas bill of around 10 to 15% from 1 April 2017, or around £80 a year based on a typical household’s consumption.

The CMA found that prepayment meter customers face particularly high levels of detriment. Competition among suppliers for prepayment customers is less developed than for those who pay by direct debit, cash or cheque. This means that there are fewer tariffs available to these customers and the tariffs that are available are generally more expensive.

Customers with prepayment meters are also more likely to be in vulnerable circumstances than those paying by other means.

The cap is due to expire at the end of 2020 when the roll out of smart meters is set to be completed, which will help prepayment meter customers in particular access better deals.

Dermot Nolan, chief executive of Ofgem, 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.”

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