What would government proposals to cap household energy bills mean for you? Well, the first thing to note is that these are just proposals, so we don’t know if they will be implemented or what the details of the cap would be. However, based on reports in the press here is a quick overview of what an Energy Price Cap could mean for you.

 

1) Will A Cap Reduce Your Energy Bill

Ideally, a cap would reduce everyone’s energy bills, but the problem there is that it could cause major loses to energy providers and therefore result in serious negative consequences for the UK energy market.

In reality, what the government wants to do is find a way to reduce the price of energy for homes across the country. To date, they have tried to increase market competition into the market to reduce prices and improve service. This has worked to a degree with more energy providers than ever before and falling fixed prices for customers. But the problem of high standard tariffs has not been solved. For 70% of UK households who have never switched energy provider, and who are essentially unengaged with the energy market, this has meant high standard tariff bills and bad deals.

The energy market at the moment has basically created winners and losers. Winners have been those engaged enough to shop around for better deals, and losers have been the majority of us who have been on standard tariffs.

A price cap could reduce people’s bills if it brings down the price of the standard tariff. But will it save as much for consumers compared to if they switched, or in effect renegotiated their rates every year?

In reality, a cap on energy prices could save customers some money (depending on how that cap was created which we will go into next), but it might not save customers as much as the alternative options. There could still be winners and losers even with a price cap in place.

 

2) How Would A Price Cap be Created

There is a huge amount of speculation around how an energy price cap would be created, pegged and brought into the market. The government have been pretty tight-lipped about it so far, but there have been reports that it would involve collaboration between the suppliers, government and independent regulator. This would result in a cap between the difference a supplier was allowed to charge between their cheapest and most expensive tariff. Immediate problems with this would be the actions suppliers would take to protect their profits, for example like raising prices just before a cap was introduced and influencing the creation of a cap to protect their pricing power.

Pricing power is an important concept when thinking about the energy market. Prices are set by markets matching customers willingness to pay for a product and a suppliers willingness to supply a service. In the energy market at the moment, customers suffer from an asymmetry in information and understanding of the energy market and contracts to supply energy that they purchase from energy providers. This means that customers have very low levels of pricing power when ‘negotiating’ with suppliers. It also means that customers are disengaged with the market because the barriers to engaging with energy suppliers and contracts are so high. i.e. most people do not want to spend their evenings or weekends going through their energy bills and working out what the best deal is for them. It is boring and complicated. This is a particularly acute problem for will more restricted access to information or resources such as pensioners, the disabled or unemployed, but also Students who might be looking for student bill packages.

 

3) Where Does Huru Come In

 

Based off some of the issues that we have discussed already, Huru doesn’t take a specific position on whether price caps are good or bad. But this is because our focus is on how to get customers the best deal possible. Price caps will be rudimentary tools to help customers out, but our focus is on how to get customers the best. How do we give customers the power to get the best information, the best service and the best deals? We believe this is by being our customers’ champions. Capping your bills is a start, but it won’t bring customers the best prices or service on the market. We are constantly negotiating with suppliers and investing in our service to bring our customers the best, and to give our customers the power to take control of their bills.

Our mission is to bring customers the easiest way to set up their bills, the easiest way to split shared bills and the best way to get the best deals. This can all be done by customers signing up to Huru and hiring us to fight for them. As policies change and the energy market adapts there will always be a role for an independent service fighting for consumers, and that is exactly what we intend to be.


Also published on Medium.