Consumer energy price cap
Discussion
I agree with the consumer energy price cap but I am not a traditional Conservative voter.
For the Conservative voters on here, how do you feel about it? It strikes me as a policy that doesn't fit in line with a lot of other Conservative policies.
If I remember correctly the price cap was bought in at a time to stop the situation where consumer end up on the worse tariff because they couldn't be bothered to change to the best tariff (which in itself may be a policy a lot on here disagree with!) - so the idea was simply the gas company would make smaller profit but most likely profit none the less. The sharp increases is gas prices does change the situation somewhat and I wondered whether there is a feeling it should be removed.... or allow a price increase in line with the cost of gas increase - which is 250% apparently.
https://www.forbes.com/uk/advisor/energy/energy-pr...
For the big companies that remain, I am just guessing that the increase in gas is going to mean they make less profit than lose a lot of money as they still have the standing charges and the electricity prices which I suspect have profit built into them. Might be a different situation if the big companies were losing money for every customer just because of the gas price hike - anyone have an insight?
For the Conservative voters on here, how do you feel about it? It strikes me as a policy that doesn't fit in line with a lot of other Conservative policies.
If I remember correctly the price cap was bought in at a time to stop the situation where consumer end up on the worse tariff because they couldn't be bothered to change to the best tariff (which in itself may be a policy a lot on here disagree with!) - so the idea was simply the gas company would make smaller profit but most likely profit none the less. The sharp increases is gas prices does change the situation somewhat and I wondered whether there is a feeling it should be removed.... or allow a price increase in line with the cost of gas increase - which is 250% apparently.
https://www.forbes.com/uk/advisor/energy/energy-pr...
For the big companies that remain, I am just guessing that the increase in gas is going to mean they make less profit than lose a lot of money as they still have the standing charges and the electricity prices which I suspect have profit built into them. Might be a different situation if the big companies were losing money for every customer just because of the gas price hike - anyone have an insight?
It doesn’t feel right to me.
Firstly it has change the risk profile of the energy supply business - you have to hedge the deals you are offering your customers, as you have no chance of raising prices. Now, there are some companies who offered stupid fixed price deals unhedged, and quite a lot of those have gone bust. But there are a lot of companies who have offered sensible deals, but literally are paying us to burn gas. Clearly we’re paying for it too, but buying something for 50p and being forced to sell it for 10p is not a viable business model.
I don’t really think that the government should be intervening in a market like this in order to “get people the best deal”. There are lots of deals, and there are lots of websites out there that will do everything for you - even my 91 year old mother has switched providers on a regular basis and she can’t even use a computer….
Generally what happens to price caps like these is that they diminish investment. Who the hell would invest in the energy supply business now? We had a load companies in this market, which is generally good for competition and will drive prices down. We may well end up with a small number of integrated energy suppliers, which is roughly where we were 10 years ago,
Firstly it has change the risk profile of the energy supply business - you have to hedge the deals you are offering your customers, as you have no chance of raising prices. Now, there are some companies who offered stupid fixed price deals unhedged, and quite a lot of those have gone bust. But there are a lot of companies who have offered sensible deals, but literally are paying us to burn gas. Clearly we’re paying for it too, but buying something for 50p and being forced to sell it for 10p is not a viable business model.
I don’t really think that the government should be intervening in a market like this in order to “get people the best deal”. There are lots of deals, and there are lots of websites out there that will do everything for you - even my 91 year old mother has switched providers on a regular basis and she can’t even use a computer….
Generally what happens to price caps like these is that they diminish investment. Who the hell would invest in the energy supply business now? We had a load companies in this market, which is generally good for competition and will drive prices down. We may well end up with a small number of integrated energy suppliers, which is roughly where we were 10 years ago,
Base load sat around £214/mWh to £240/mWh last week.
The cap is £0.239/kWh on average.
This means the maximum a company can charge is the same as they can buy it for wholesale.
This excludes the costs of running their businesses, wholesale trading arrangements, cost of capital, distribution costs, transmission etc.
Gas is even worse as it hit £4/therm last week and the max chargeable under the cap is £0.05. £4/therm equates to about 13.5p/kWh.
None of the above includes other obligations including green levies, energy company obligations etc.
In plain terms, for periods last week, a customer on a capped tariff would be margin negative for most suppliers to the tune of about £900.
The issue is not constrained Gas supply, badly capitalised or badly run suppliers, it is years of poor government policy and woefully ineffective regulation now being compounded by an obstinate business secretary that has backed himself into a corner.
You cannot allow market forces to resolve a "market" governed by price controls.
The cap is £0.239/kWh on average.
This means the maximum a company can charge is the same as they can buy it for wholesale.
This excludes the costs of running their businesses, wholesale trading arrangements, cost of capital, distribution costs, transmission etc.
Gas is even worse as it hit £4/therm last week and the max chargeable under the cap is £0.05. £4/therm equates to about 13.5p/kWh.
None of the above includes other obligations including green levies, energy company obligations etc.
In plain terms, for periods last week, a customer on a capped tariff would be margin negative for most suppliers to the tune of about £900.
The issue is not constrained Gas supply, badly capitalised or badly run suppliers, it is years of poor government policy and woefully ineffective regulation now being compounded by an obstinate business secretary that has backed himself into a corner.
You cannot allow market forces to resolve a "market" governed by price controls.
weebaws said:
Base load sat around £214/mWh to £240/mWh last week.
The cap is £0.239/kWh on average.
This means the maximum a company can charge is the same as they can buy it for wholesale.
This excludes the costs of running their businesses, wholesale trading arrangements, cost of capital, distribution costs, transmission etc.
Gas is even worse as it hit £4/therm last week and the max chargeable under the cap is £0.05. £4/therm equates to about 13.5p/kWh.
None of the above includes other obligations including green levies, energy company obligations etc.
In plain terms, for periods last week, a customer on a capped tariff would be margin negative for most suppliers to the tune of about £900.
The issue is not constrained Gas supply, badly capitalised or badly run suppliers, it is years of poor government policy and woefully ineffective regulation now being compounded by an obstinate business secretary that has backed himself into a corner.
You cannot allow market forces to resolve a "market" governed by price controls.
We have a winner. Regulations are playing to the peanut gallery, not ensuring businesses have the correct pricing models. It's exactly the trap that finance fell into pre 2008. The reason finance got decent regs, is because every developed nation looked into the abyss in Sept 2008, and despite all the industry kicking and screaming a change was needed. Energy, food supply etc are all getting tested post Covid, Brexit and crushing margin is going to murder poor business practice.The cap is £0.239/kWh on average.
This means the maximum a company can charge is the same as they can buy it for wholesale.
This excludes the costs of running their businesses, wholesale trading arrangements, cost of capital, distribution costs, transmission etc.
Gas is even worse as it hit £4/therm last week and the max chargeable under the cap is £0.05. £4/therm equates to about 13.5p/kWh.
None of the above includes other obligations including green levies, energy company obligations etc.
In plain terms, for periods last week, a customer on a capped tariff would be margin negative for most suppliers to the tune of about £900.
The issue is not constrained Gas supply, badly capitalised or badly run suppliers, it is years of poor government policy and woefully ineffective regulation now being compounded by an obstinate business secretary that has backed himself into a corner.
You cannot allow market forces to resolve a "market" governed by price controls.
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