Ofgem announces price cap for pre-pay meters that could save 4 million households up to £80 a year
An investigation found pre-pay customers face 'particularly high levels of detriment' as there is less competition among suppliers
ENERGY watchdog Ofgem has set a temporary price cap that could save pre-pay customers up to £80 a year.
Around four million households that use pre-pay meters could see a reduction in their gas bill of around ten to 15 per cent.
The energy regulator said the move would come into effect from April to protect pre-paying customers after a probe found they face "particularly high levels of detriment".
The two-year investigation found that competition among suppliers for prepayment customers is less developed than for those who pay by direct debit, cash or cheque.
This means that there are fewer tariffs available to pre-pay households, and the ones that are available are generally more expensive.
The cap is one solution the Competition and Market Authority (CMA) came up with to help customers.
The levels of the price cap will vary for gas and electricity by meter type and region and will be updated every six months.
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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."
The cap is due to expire at the end of 2020 when the roll out of smart meters is set to be completed.
Gillian Guy, chief executive of Citizens Advice, said: "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."
What is a prepayment meter and are they more expensive?
Prepayment meters are a type of domestic energy meter. With a prepayment, or 'pay as you go' tariff, customers pay for their energy before they use it. This is done via a smartcard, token or key that can be topped up at a corner shop or online.
Around 5.9 million people in the UK have a prepayment energy meter, according to comparison website uSwitch.com, but those on prepayment meters typically pay more for each unit of energy they use than standard customers.
Also, unlike customers on standard meters who can choose from a range of tariffs, prepayment customers sometimes only have the choice of one plan, as energy providers often offer just one tariff to prepayment customers, which is usually far more expensive than the supplier’s best tariffs.
Last week, Ofgem demanded an explanation as to why npower had announced price hikes of almost ten per cent.
The energy supplier said on Friday that half of its 2.8 million would see their bills rise by an average of 9.8 per cent – adding £109 a year to gas and electricity costs.
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