Ofgem to adjust default tariff price cap by £23.69 to help energy suppliers tackle bad debt

Adjustment Allowance

Last October Ofgem slashed the price cap by £84 to its lowest ever level in an attempt to assist the 11 million households on default tariffs struggling financially as a result of the national lockdowns.

The UK economy has been hit hard with unemployment on the rise, and the slashing of the price cap was designed to reduce energy costs throughout the winter. With wholesale energy prices rising and bad debts, mounting energy suppliers will find some support.

In November 2020, a consultation was launched between the regulator and energy suppliers regarding whether a price cap rise would be warranted. The answer was yes, with many suppliers citing the rising costs of energy and increasing numbers of customers struggling to pay their debts.

During the consultation, Ofgem considered an adjustment allowance to assist energy suppliers with the pandemic's financial impacts.

Last month, Cornwall Insight had predicted a price cap hike of £66, but Ofgem decided that the £23.69 increase was more favourable to consumers whilst still being beneficial to energy suppliers.

Also read: Energy Price Cap predicted to rise £66 due to wholesale energy price recovery

Rising Energy Bills

According to price comparison site Compare the Market, the average price of the cheapest energy tariffs has risen by £78 since the start of December. At the start of December, the average cost of the 20 cheapest energy tariffs was £857 for a typical household, however, at the end of January that had risen to £935.

"We do not believe it is in customers' interest to delay allowing suppliers to start to recover these additional costs. This would mean customers are facing a much higher adjustment for the next cap period next winter- the time when energy use and bills are at their highest," said Ofgem CEO Jonathan Brearly in the decision.

Also read: How should Energy Suppliers explain Energy Bill Increases?

Energy Suppliers can attract new customers with lower tariffs

The increase in the energy price cap will add extra costs to the average consumers' energy bills and is likely to increase the number of consumers seeking better deals.

Energy suppliers that can offer cheaper tariffs can take advantage of the price cap rise by offering better value for money tariffs and grow their customer base. 

Covid-19 impacts to continue

Thanks to the vaccine rollout across the UK, there is increasing optimism that there is some light at the end of the dark pandemic tunnel. However, viruses are tricky things, and the pandemic situation could easily change.

A new more dangerous mutation or a failure of the vaccine rollout could result in further restrictions and lockdowns which is why Ofgem announced that it will be continuing to review the impacts of the pandemic on the energy sector throughout the year.

The regulator will be assessing whether further changes to the price cap will be needed in the next price cap period set to launch on October 1st 2021.

The first full increase for the price cap is not expected to take effect until April 2022 as Ofgem expects to have collated enough data to truly assess the impacts of the pandemic and bad debts.

Also read: Ofgem considering Energy Bill hike to help ease pressure on Energy Suppliers

Use Dyball's CRM to implement the price cap change

Whenever the price cap is changed, it can cause energy billing issues for energy suppliers.

In January 2020, OVO energy was fined £8.9 million by the regulator for overcharging customers because it failed to implement the energy price cap changes.

You can avoid such issues with Dyball's CRM as it incorporates an energy billing system allowing scheduled and ad-hoc bill production to your bespoke branded billing template. You can manage customer energy billing by exception, with bill runs automated through the system, and errors and exceptions quarantined to be resolved by your billing team.

The energy billing software we provide effortlessly integrates with our chosen ledger and direct debit partners. Additionally, our energy billing solutions can include bespoke integrations with your chosen Direct Debit and Sales Ledger provider.

CRM energy billing solutions will help automate your billing and collection processes.

Further Reading

Smart Meter rollout hits 10 million milestone

Add your Customers to the Priority Service Register with Dyball's CRM

EDF takes on Green Network Energy's domestic customers, and British Gas Evolve get Simplicity's

Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.

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