Ofgem sets prepayment price cap to protect over four million households least able to benefit from competition

Ofgem sets prepayment price cap to protect over four million households least able to benefit from competition

Ofgem has today (7th February) announced the levels of the prepayment price cap which come into effect this April.

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

The cap will initially apply to over four million households who prepay for their energy, mostly with traditional prepayment meters, and are amongst 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 10-15% from 1 April 2017 or around £80 a year based on a typical household’s consumption. 

Many prepayment customers who use electricity to heat their home such as those on Economy 7 meters will see their electricity bill fall, with reductions of 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.