UK To Introduce Retail Cap Law
The UK government said February 26 that legislation to introduce caps on retail gas and electricity prices will be introduced in parliament the same day, in readiness to take effect from next winter.
Prompt UK wholesale prices meanwhile have surged higher because of sustained cold weather arriving from the east.
The new legal cap will guarantee protection for the 11mn households currently on the highest energy tariff in England, Scotland and Wales starting next winter, the government said.
In an open letter to the Big Six UK retailers’ CEOs, the government’s business secretary Greg Clark and energy minister Claire Perry wrote to justify their action to cap energy retail prices from next winter: “We are taking this action because the energy market is not working for all customers. The Competition and Markets Authority 2016 investigation into the energy market highlighted that domestic customers of the Big 6 energy companies pay on average £1.4bn ($1.96bn) a year more than they would in a truly competitive market.” Perry told BBC Radio that the caps could be adjusted up or down, depending on major changes in wholesale energy prices, and were not designed to stifle investment or competition.
Until now, the UK has been one of few EU countries that for 20 years have had no government-set control of energy retail prices. Both the governing and main opposition political parties went into the 2017 election promising some form of price cap. The government reiterated its plan last October.
Clark and Perry wrote that the existing retail sector in effect had a “two-tier market: Those households who are prepared to shop around can, on average, save around £300 from switching from a standard variable tariff [SVT] of the Big 6 to the cheapest tariffs on the market. But far too many customers remain on poor value tariffs. It is of particular concern that these customers typically tend to be more vulnerable than those who are getting the best deals.”
Perry said moves by leading Centrica to replace the SVT with a different or renamed tariff would not make it exempt from the cap.
Leading UK energy retailer Centrica said last week that “political and regulatory intervention in the UK energy market” was among key factors that had “created material uncertainty around Centrica.”
The CEO of Energy UK, which represents suppliers, Lawrence Slade said: “With a record 1 in 6 customers switching last year and over 60 suppliers to choose from, the energy market is changing rapidly and has never offered so much choice. It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills. It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control.” Distribution and clean energy costs represent a significant share of final UK retail supplier costs.
‘Beast from the East’ arrives
Short-term wholesale energy prices across Europe including the UK meanwhile surged last week ahead of the expected arrival from Siberia of a week-long period of snow and unusually cold weather across Europe, nicknamed the 'Beast from the East'.
On February 23, the UK NBP wholesale spot gas price for day ahead (so gas for February 26) closed at 71p/therm ($9.92/mn Btu), itself 41% higher than the close a week ago for day-ahead of 50.15p/th.
Gas for the rest of this week on February 23 at the UK NBP closed at 60p, up 19% from the comparable week-before 'balance of week' level of 50.4p/th.
Update February 26, 5pm GMT: At the close of February 26 trading, about half an hour earlier at about 4.30pm GMT, day-ahead had eased to 66.2p/th, whereas gas for the remainder of this week closed higher at 66.5p/th.