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Does the energy price cap apply to businesses?

Are business energy prices capped?

There isn’t a price cap for UK businesses, as government support through discounts and schemes provided cost-effective options for businesses.

It appears that the days of skyrocketing household energy tariffs are numbered, with Ofgem implementing a new energy price cap from the 1st of January 2019.

The government’s energy regulator are estimating an average saving of £76 on the utility bills of 11 million people each year, but the initiative hasn’t been met with the warmest reception. Consumer groups and suppliers have both expressed concerns over the impact of the price cap on customers and the wider UK energy market.

But what does this mean for UK businesses? To figure that out, we first need to understand how the price cap works.

Ofgems price cap: the first step to energy market reform

The thinking behind the price cap is pretty simple: to protect homeowners from paying over the odds for their gas and electricity by placing a limit or on the amount that energy suppliers can charge on a standard variable rate (SVR).

SVRs are the default tariffs charged by energy suppliers. They don’t have a fixed-term or end date and roll over each month, and much like mobile phone contracts or gym memberships, are often more expensive than contracts with a fixed term.

Thanks to new powers written into law on the 19thof July 2018, Ofgem was given the power to enforce this energy cap and did so from the 1st of January 2019. While it’s only intended to be a temporary measure as Ofgem continues to reform the UK energy market, it’s not been without controversy.

The argument against the energy price cap

Man Holding a Bulb
Photo by Riccardo Annandale on Unsplash

While the stated intention behind the cap is simple, the reality of this new legislation has far-reaching consequences for businesses and consumers alike.

Consumer groups have argued that the cap will dissuade consumers from shopping around for the best tariffs, preventing them from accessing the maximum savings possible. The energy industry itself has also been vocal in its opposition to the cap, with concerns that it will force smaller suppliers out of business. This would limit competition and force niche consumers to enter the mainstream market, which would have a knock-on effect on the market as a whole.

Larger suppliers are also arguing that Ofgem hasn’t taken wholesale energy costs into account when calculating the cap, a concern that has led Centrica, the owner of British Gas, to seek a judicial review of Ofgem and their cap.

So what does this mean for your business and your energy bills?

Despite the pricing cap only covering household or domestic customers, reforms on this scale will almost certainly have an effect on the wider UK energy market. Suppliers like Centrica have already issued warnings that the price cap will cost it £70m in the first three months of 2019 alone, and it’s been widely reported that the cap will be raised in April 2019 in sync with the start of the new tax year.

In short, the UK energy market is likely to be turbulent for the foreseeable future, and with the looming spectre of Brexit on the horizon, it’s unlikely that prices are going anywhere but up.

It’s not all doom and gloom

With a panel of over 15 of the UK’s best utility suppliers, we can offer you independent business energy comparisons to help you find the right rates for you and your business, with multiple term lengths available so you can ride out the turbulent market conditions on a fixed-rate tariff.

Plus, we’ve received many 5-star reviews, resulting in us being rated Excellent on Trustpilot by our customers, so you can rest assured that you’re in capable hands.

Learn more about Exchange Utility and what we do.

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