What's the point of a price cap if it keeps increasing
this post was submitted on 01 Jan 2024
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It prevents surprise bills. You know the maximum you’ll pay for the next 3 months.
So we get surprised every three months rather than every month.
That wasn't the original intent of the measure though afaik, it was to regulate third parties so they don't overcharge. Yet here we are, utilities companies charging ever higher prices and also reporting ever higher profits.
It doesn't. It increases when the market price increases, it decreases when the market price falls.
The point of the price cap isn't to be some sort of subsidy of consumer energy costs - though the government did some separate stuff along those lines with the energy price guarantee (which capped the typical household's energy bill at £2,500 for the period it was relevant) or the support scheme in winter 2022 when the taxpayer paid everyone £400. The price cap is now below the energy price guarantee so the subsidies are no longer relevant.
The price cap is just a way of giving people who chose to be on variable tariffs a little bit of predictability of what they'll be paying for energy three months ahead when the market prices are moving around.
I've still not found a satisfactory explanation for why we have our electricity prices pegged to gas prices. It seems breathtakingly stupid, not to mention infuriating. Is there any sense behind it? Or is it just more corruption as usual?
Isn't it still that around 40% of electric is generated by gas turbines?
So less than half, with more wind and solar being added all the time. Hmmm.
2023 was about ⅓, down from ⅖ the year before. The drop came from a decrease in demand, and an increase in wind and imports.
That's good. Each year the link gets more tenuous, but I can see that there was logic behind it however many years ago whenever it was set. Of course it'll have to get to the point where it's so totally absurd that even the Tories can't ignore it before there's any chance of a change.
Tories won't do shit. They've got an election to lose.
The electricity supply auctions need to stop paying all generators the price/MWh that the most expensive auction winner is at. For one thing, it means we're in this kind of feast or famine situation where the electricity price collapses when we have enough wind to cover demand. That kind of bimodal market is going to send companies to the wall, I'm sure.
Not sure what the right model is. The current on does have the advantage that generators really want to get into wind because the margins are so high, being able to sell for gas prices. Great, but it's at the expense of consumers. We need to balance that better.
I guess the silver lining is that it encourages investment in wind and PV.
We have a lot of gas power stations. These are more efficient, cheaper and cleaner than coal or oil and can be brought online when it's a cold, windless winter day but when gas goes up, so does the cost of electricity.
Until there's a considerable battery base installed, this is the way of things for now.
There are two components to the rise - the consumer's gas price (which is linked to the wholesale gas price for obvious reasons) and the electricity price, which as a substantial linkage to gas because a big chunk of generating capacity is based on gas for most consumers.
The government wants to avoid more energy suppliers going out of business, so it is raising the cap in recognition of the increased gas prices.
I hate how the price cap is demonstrated as a yearly arbitrary figure. Why not just say the KWh unit price.
This is the best summary I could come up with:
The change, taking effect from 1 January, means average households are beginning 2024 with a 5% increase in energy bills – at the start of what could be the coldest three months of the year.
The increase means that for the period 1 January to 31 March, the price cap is £1,928 a year for a typical household that uses gas and electricity and pays their bill by direct debit.
The Ofgem chief executive, Jonathan Brearley, has acknowledged that many people are having “a difficult time” and that “any increase in bills will be worrying”.
In the run-up to Christmas, Citizens Advice reported record numbers of people unable to pay their energy bills.
Alastair Douglas, the chief executive of the website TotallyMoney, said energy companies had been instructed to contact struggling customers and offer support, “but that doesn’t mean you have to wait for them to reach out”.
The average annual electricity and gas bill should come down to £1,660 in April, the analytics firm Cornwall Insight has predicted.
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