Energy price cap has ‘destroyed’ competition, say academics

Introducing a price cap for energy bills has ‘destroyed’ the UK’s competitive market for gas and electricity, researchers have said.

Academics at the University of Exeter and the University of Warwick studied the effects of Ofgem’s maximum price for energy, which was brought in after 2016 when the Competition and Markets Authority’s found consumers on standard variable tariffs were overpaying by £1.6bn per year.

However, the academics say a consequence of this is an end to healthy competition between companies with consumers now left worse off, especially vulnerable people who are less likely to switch tariffs.

This is because all energy suppliers are all sticking to the maximum level.

Instead, the academics say Ofgem should regulate the way consumers renew their contracts with gas or electricity firms.

A total of 17% of consumers switched energy supplier between June 2016 and June 2017, a significant increase in comparison to previous years.

Dr Timothy Dodsworth, from the University of Exeter Law School, who led the study, said: ‘Ofgem had good intentions, but their actions have destroyed the healthy consumer market which existed for energy.

‘By introducing a price cap they have removed much competition. Providers are all moving to offer prices at the level of the cap, so the potential benefits Ofgem envisioned don’t exist.

‘It is right that the regulator should protect the most vulnerable. But it would have been better to regulate the way people renew their contracts with their energy supplier, so the regulator or another body could step in and help them when it’s clear they are paying too much money. This could involve moving them to pre-payment meters, which would have a price cap.’

Responding to the report, an Ofgen spokesperson said: ‘The price cap legislation has set Ofgem two objectives for the price cap – first to protect customers who don’t switch. And we’re doing that.

‘The second is to enable competition in the energy market to continue. That means setting the price cap at a level which allows efficient suppliers to offer cheaper deals below the level of the cap for the more than 10 million customers who have switched to fixed deals.

‘We’ve done this, which is why we are still seeing even better value deals on the market and record switching rates.

‘Because ultimately, we believe a fully competitive market is the best way for all consumers to get a better deal.

‘We encourage those who remain on default deals who want to save even more money to shop around for one of these deals.

‘But if they don’t, they will always have a basic level of protection and pay a fair price for their energy.’