Citizens Advice has welcomed an announcement by the energy regulator Ofgem to cap the amount prepayment meter customers pay for gas and electricity, which the regulator estimates could save poorer customers up to £160 a year on their energy costs.
The temporary cap comes into force from 1 April 2017 and will remain in place until 2020, when the roll out of smart meters is due to be completed which help prepayment customers to access better deals.
The cap comes in response to a two-year investigation by Ofgem of the energy market, which found prepayment customers are “denied the best deals on the market available to those using other payment methods”.
Initially, over four million households who prepay for their energy are expected to benefit from the new cap – many of whom are widely considered as being the least able to afford high energy costs, or benefit from competition in the market.
Ofgem estimates that many prepayment customers are likely to see reductions in their gas bill of around 10-15% from 1 April 2017, or around £80 a year based on a typical household’s consumption.
Meanwhile, many of those who prepay for electricity, and whom don’t yet have smart meters installed, are also expected to see reductions of around £80 a year – bringing the combined total saving for people who prepay for both gas and electricity to around £160 a year.
The levels of the cap for both electricity and gas will vary by meter type and region.
Dermot Nolan, chief executive of Ofgem, said: “We want all consumers to enjoy the benefits of a more competitive energy market, regardless of their circumstances.
“Customers who prepay for their energy are denied the best deals on the market available to those using other payment methods. They are also more likely to be in vulnerable circumstances, including fuel poverty.
“This temporary cap will protect these households as we work to deliver a more competitive, fairer and smarter market for all consumers.”
Welcoming the announcement, Gillian Guy, chief executive of Citizens Advice said: “This cap should stop some of the poorest households paying over the odds to heat and light their homes.
“For years prepayment meter customers have been paying more for the same gas and electricity as other customers, whilst also receiving a second-class service from their supplier.
“The cap set by Ofgem will help millions save money but action shouldn’t stop there. The government has rightly expressed concern that loyal customers on standard tariffs are paying over the odds for their gas and electricity.
“It could help more struggling households, including low-income pensioners and families, by extending this cap to people eligible to receive the Warm Homes Discount.”