What would a price cap mean for the energy market? | KPMG | UK

What would a price cap mean for the energy market?

What would a price cap mean for the energy market?

One of the key commitments in the Conservative Manifesto was to introduce a “safeguard tariff cap [on energy bills] that will protect customers who do not switch against abusive price rises”. This form of intervention marks a significant change in attitude to UK energy policy.

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What would a price cap mean for the energy market - image of several lightbulbs one is lit

The Prime Minster has announced in her conference speech that the Government will publish draft legislation for an energy price cap next week (w/c 9 October). She said that the Government “would always take on monopolies and vested interests when they are holding people back” and that one of the “greatest examples in Britain today is the broken energy market”.  

While it may take some time for this Bill to become law, it will have significant impacts on the retail energy market. We published a discussion paper on the possible impacts in June 2017 when this measure was first announced. The discussion paper contemplates the potential implications of a price cap for the way the UK energy market works, and raises some major questions that boards in the energy sector need to consider such as:  

  • Would a price cap mean lower bills?
  • What would the implications be for switching?
  • How would the competitive landscape change?
  • How would consumer and investor confidence be affected?
  • What would the impact be on investment and innovation?

Read the full report: What would a price cap mean for the energy market.

Alternatively, our ‘Where next for retail price regulation?’ summary considers the other forms of intervention Ofgem could implement. 

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