A report by the Center for Policy Studies (CPS), a center-right think tank, indicates that the energy price cap set by the United Kingdom's energy regulator, Ofgem, has hindered customers from accessing lower electricity prices and contributed to an increase in inflation levels. This cap, having far exceeded its initial purpose of protecting consumers, has effectively become a regulated market price.
Dillon Smith, a researcher of Energy and Environment at CPS, stated that over the past two years, nearly all electricity prices have been at or slightly below this cap, with no evidence suggesting this will change in the near future. This means the government has essentially set the market price of energy, removing any opportunity for customers to choose cheaper energy options.
The report not only urges the UK government to eliminate price caps and return to a competition-centered retail sale but also calls for enhanced protection for those suffering from energy poverty. It suggests implementing social tariffs for households where a large portion of income goes to energy bills, imposing so-called "loyalty penalties" on those who are behind on tariffs, and establishing a long-term, resilient energy market.
This "Winter Tariff Watch" report, compiled in collaboration with the Future Energy Association (FEA), reveals that the profit suppliers make annually from ordinary consumers skyrocketed from £27 in the spring of 2017 to £130 at the beginning of 2023. The study suggests that, over the next 12 months, domestic energy suppliers could make a profit of £1.74 billion from customers' energy bills.
Craig Lowrey, the chief advisor at Cornwall Insight, mentions that despite a recent reduction in the price cap, households are still facing energy bills far higher than historical levels. This situation has sparked public debate about the purpose of the cap, its effectiveness in protecting consumers, and its impact on tariff competition.
The "Winter Tariff Watch" report also highlighted that, in the initial months of this year, only five fixed tariffs were available in parts of the energy market, but this number doubled in July alone.
In response, a spokesperson for energy companies in the UK countered, arguing that the report by CPS and FEA overlooks the £4 billion lost by suppliers over the past four years. While many energy suppliers in the UK might return to profitability this year, the spokesperson emphasized that any profits should be viewed in the context of recent losses.
Moreover, the spokesperson highlighted that the majority of customers in the UK are on capped tariffs, stating that Ofgem's intention in setting these caps is to ensure that the price customers pay reflects the cost of energy supply. They suggested that significant changes to the UK's energy price cap policy are unlikely in the coming months.
