IPA Advisory Ltd

Implications of Widening GB Energy Retail Price Controls

Now that the public have voted, the manifesto pledges of both the Conservative and Labour parties to extend GB energy retail price controls raise questions as to whether a price cap will deliver their visions of fair or secure, affordable and sustainable energy markets. 

The Competition and Markets Authority’s (CMA’s) recent Energy Market Investigation found that the majority of customers did not effectively engage in GB’s retail energy markets to achieve significant potential savings through switching tariffs, suppliers and/or payment methods. With those on prepayment meters facing “particularly high” detriment, the CMA proposed to cap prices for those customers. However, given the significant risks associated with price caps, the CMA proposed alternative remedies in order to strengthen market signals to, and encourage wider engagement by, other customers. At the same time, Ofgem has been moving from a prescriptive approach to a more principles-based approach to regulation. Seemingly flying in the face of these efforts, both parties have pledged to impose restrictions on the market by capping prices (albeit in different ways) for a large proportion of the domestic market. In this Regulatory Insight article, IPA Advisory examines how this threatens previous efforts to encourage retail competition and discusses critical issues around how a price cap could be effectively implemented.

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