The new energy price cap doesn’t mean you will automatically get a good deal.
Earlier this month the government’s new energy price cap came into effect. But unfortunately this doesn’t mean you can sit back and relax, confident in the knowledge you are not being ripped off.
The cap puts a limit on the price a supplier can charge per kWh of electricity and gas you use. It has been set at £1,137 per year for a dual-fuel customer who uses a typical amount of gas and electricity and pays by direct debit.
The trouble is that the cap is more expensive than a lot of deals on the market. The average consumer who switches supplier pays £921 per year, according to comparison site Compare the Market. So if you rest on your laurels as a result of the price cap it could cost you £200 a year. Even Ofgem, the energy regulator, has admitted the price cap is only designed to protect loyal customers who don’t switch regularly. This means there is still money to be saved by shopping around.
Just keep in mind that these days it’s not merely a case of tapping your details into a price-comparison site and choosing the cheapest deal. Nine small energy firms have collapsed in the past year, affecting more than 800,000 households and leaving many of us wary of choosing a firm beyond the traditional “big six”.
Since the gas and energy markets were opened up to competition, a huge number of new companies have appeared. The regulator has now tightened up licensing rules, but there are already 73 firms operating in a highly competitive market.
Given the market now has a price cap, a wholesale price rise could cause big problems for some of the smaller energy providers.
If your energy firm does collapse, however, there is no need to panic. Your energy supply is maintained while Ofgem chooses a new supplier to take over the accounts. You will then be informed of the new tariffs and given the opportunity to switch. This is your chance to make sure you are still getting a good deal, so check the details carefully and shop around.
So far, anyone who was in credit with their supplier when it folded has had that balance protected. But it is generally a good idea not to build up significant credit balances. Former customers of Economy Energy, which collapsed earlier this month, have complained to The Guardian that they have had to wait months to get a refund, with one reader suggesting the company increased his direct debits in an attempt to boost its cash reserves.
Finally, although you may not end up out of pocket straight away, all these collapsing firms are costing you money. When Ofgem selects another supplier to take over the accounts of failed firms, that company can claim funds to cover the cost of transferring customers. This cost could be as much as £80m for British households (an average of £1.75 added to bills), estimated The Guardian in December (prior to Economy Energy’s collapse).