The UK government is preparing to intervene to control energy prices because the market is “manifestly not working” for consumers, according to Prime Minister May. The Government has faced repeated calls for a fixed price cap on energy tariffs amid accusations that the so-called Big Six energy companies are not competitive enough on pricing.
But the decision comes just after the government gave the go-ahead to Hinkley C, with an offtake price 2-3 times higher than current wholesale market prices. One thing most in the market are agreed on is that longer term prices will rise, so any intervention downwards now will become increasingly hard to maintain as the years pass.
The Prime Minister said gas and electricity customers were not getting a fair deal and that she would act soon to “crack down” on businesses that “abuse the system”. Several of the "big six" integrated utilities in the UK have raised prices recently, but the government does not feel this was justified, despite an upward movement in prices on the gas and power markets since last summer.
One suggestion being considered is that energy companies could be forced to accept a “relative price cap” which would peg their most expensive tariffs at no more than 6% above their cheapest rates. This would allow prices to move in line with gas market levels, so would be far more feasible than an outright fixed price.
Mrs May pointed out that energy prices have risen by 158% in the last 15 years, and she was in charge of a government that is “on the side of working people, acting to repair broken consumer markets”. However, the rise was largely due to low domestic gas prices 15 years ago, fed at the time of the North Sea’s maximum production, which was more than enough for national demand. Since then gas prices have trebled, largely as a result of higher imports and falling domestic output.
Iain Conn, head of Centrica, said it was wrong to intervene: "This market is littered with interventions that have gone wrong. A cap would almost certainly remove choice from the market. I would worry that if there is price regulation, more companies would find it difficult to manage and would probably go out of business or more companies would say: This market is no longer attractive, therefore, I don’t want to be in it.”