Wednesday 27 March 2019

Ofgem extends energy price cap exemption for three suppliers

Ofgem extends energy price cap exemption for three suppliers

Three energy suppliers have been granted an extension of the temporary derogations from Ofgem’s price cap in relation to their renewable standard variable tariffs (SVTs).

That enables Good Energy, Ecotricity and Green Energy to charge consumers above the rates set by the default tariff cap for the SVTs limit set by the regulator – which comes into effect on 1st April 2019 - as a result of how the suppliers derive all of their power from renewable sources.

Ofgem has set the energy price cap at £1,254 a year for dual fuel standard variable customers and £1,242 annually for prepayment customers.

The regulator initially granted the temporary derogations in January this year and has now extended it until 1st September 2019 to further assess if green energy tariffs should be exempt from the price cap to prevent it from penalising suppliers that offer 100% renewable tariffs and having any negative impact on green investments.

Energy suppliers seeking the exemption must submit a derogation application, which is assessed by Ofgem.

The regulator previously said: “A key reason for not providing a blanket exemption for certain types of renewable tariffs is because they pose the risk of suppliers ‘gaming’ the exemption, for example by allocating renewable activities from across their portfolio to their SVT.

“Our decision to allow suppliers to apply for a derogation means suppliers may, on a case-by-case basis, be able to demonstrate that a particular SVT does support renewables, involves materially higher costs and that every customer on the tariff has made an active decision to do so. It would also be easy to monitor who has a derogation.”

The suppliers have been issued the extended time-limited derogation to review the their request for an enduring derogation – Ofgem says further information needs to be submitted for a “thorough and comprehensive” evaluation.

Charles Hargreaves, Deputy Director for Enforcement added: “Further analysis will enable the Authority to make an informed and final decision on whether to grant an enduring derogation. This is important, as if we were to make a decision without completing further thorough and comprehensive evaluation, then we may grant a derogation where one is not necessarily appropriate. This could result in consumers not being protected by the default tariff cap where such protection should be in place.

“Conversely, if we were to not grant a derogation where one in appropriate, it could risk the licensee being unable to fully recover additional costs it may face from supporting renewables or it may unnecessarily require it to change its business model.”

Written by

Bruna Pinhoni

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