Does the cap help or has it exacerbated the crisis?

michaels

The cap has helped make the UK energy market 'fairer', preventing those who are too lazy to shop around from being fleeced for their laziness.

However I think it may have added materially to the current crisis:

1) Supplier Hedging
Suppliers can not buy ahead a whole winter or longer when prices are relatively cheap as that puts them at risk that wholesale prices fall after they hedge and the cap comes in cheaper than they have bought at.  This means they pretty much need to hedge in exactly the same way the cap is set, each day they need to buy the amount of energy they will need to supply in 3/6 months times at the 3/6 month forward price.  For example we have recently seen a big run up in prices, had companies hedged the whole winter 2 months ago then it would have locked in about half the cost, yes it would have been costly had prices fallen instead of risen, but it would have given us certainty

2) Consumer Behaviour
The cap means consumer prices have lagged the increase in wholesale prices.  This has resulted in fixes always being priced higher than the current SVR which not surprisingly has resulted in most people deciding to risk it on future cap rather than fixing now and paying more for several months in the hope of then paying less.  Again, same effect, rather than people being on long fixes that would have protected them from the spike (with suppliers buying forward to hedge the risks) instead most are going to have to suffer the consequences.

So the cap succeeded in its stated aims but has completely screwed the UK energy market by making it impossible/unattractive to lock in the lower prices seen earlier this summer and thus cost us hundreds of billions.

peter_the_piper

The cap is supposed to be the maximum a company can charge. I find it amazing that their costs suddenly go up so much they have to charge the maximum the cap is set  at.

ChaunceyGardiner

michaels said:

The cap has helped make the UK energy market 'fairer', preventing those who are too lazy to shop around from being fleeced for their laziness.

That's rather unfair. Plenty of people are not in a position to switch, because their landlord won't allow it, or they have complex meters, or they don't understand the system, due to being elderly, or of low intelligence etc.

ChaunceyGardiner

peter_the_piper said:

The cap is supposed to be the maximum a company can charge. I find it amazing that their costs suddenly go up so much they have to charge the maximum the cap is set  at.

Their costs exceed the cap, and have done for some time. Do you follow the news?

macman

ChaunceyGardiner said:

michaels said:

The cap has helped make the UK energy market 'fairer', preventing those who are too lazy to shop around from being fleeced for their laziness.

That's rather unfair. Plenty of people are not in a position to switch, because their landlord won't allow it, or they have complex meters, or they don't understand the system, due to being elderly, or of low intelligence etc.

Your landlord cannot prevent you switching supplier. It's the choice of the bill payer.

[Deleted User]

ChaunceyGardiner said:

michaels said:

The cap has helped make the UK energy market 'fairer', preventing those who are too lazy to shop around from being fleeced for their laziness.

That's rather unfair. Plenty of people are not in a position to switch, because their landlord won't allow it, or they have complex meters, or they don't understand the system, due to being elderly, or of low intelligence etc.

Landlord can't stop it if the tenant is the bill payer.

There are very few truly complex meters around, most are very standard.

There is plenty of help explaining bills and switching to those who don't understand - and personally I don't hold much for the "I don't understand energy bills and unit prices" discussions, it's no different to a tin of beans.

There may be a small group to whom your comment applies, but in the main, lack of switching was driven by lack of engagement (or "can't be bothered" in layman's terms).

michaels

TLDR

1) The cap has prevented supplies from hedging the whole winter in advance

2) The cap has discouraged consumers from fixing

ChaunceyGardiner

macman said:

ChaunceyGardiner said:

michaels said:

The cap has helped make the UK energy market 'fairer', preventing those who are too lazy to shop around from being fleeced for their laziness.

That's rather unfair. Plenty of people are not in a position to switch, because their landlord won't allow it, or they have complex meters, or they don't understand the system, due to being elderly, or of low intelligence etc.

Your landlord cannot prevent you switching supplier. It's the choice of the bill payer.

I realise that. But many don't. As I understand it, landlords can insist that you switch back to the original supplier at the end of the tenancy, which is another hassle.

ChaunceyGardiner

Landlord can't stop it if the tenant is the bill payer.

There are very few truly complex meters around, most are very standard.

There is plenty of help explaining bills and switching to those who don't understand - and personally I don't hold much for the "I don't understand energy bills and unit prices" discussions, it's no different to a tin of beans.

There may be a small group to whom your comment applies, but in the main, lack of switching was driven by lack of engagement (or "can't be bothered" in layman's terms).

Taken all together, the majority of consumers were not being served by the system, for whatever reason, hence the cap. And no, it's not a simple as shopping around for a cheaper tin of beans.

sevenhills

michaels said:

TLDR

1) The cap has prevented supplies from hedging the whole winter in advance

2) The cap has discouraged consumers from fixing

It's an interesting question, does the cap work.

There is no cap on business energy, what percentage of the market is that?
There is lots of hype around energy and poverty, businesses going bust, is that hype or are business energy costs better or worse than domestic costs?

pochase

ChaunceyGardiner said:

Landlord can't stop it if the tenant is the bill payer.

There are very few truly complex meters around, most are very standard.

There is plenty of help explaining bills and switching to those who don't understand - and personally I don't hold much for the "I don't understand energy bills and unit prices" discussions, it's no different to a tin of beans.

There may be a small group to whom your comment applies, but in the main, lack of switching was driven by lack of engagement (or "can't be bothered" in layman's terms).

Taken all together, the majority of consumers were not being served by the system, for whatever reason, hence the cap. And no, it's not a simple as shopping around for a cheaper tin of beans.

You are right, it was not as simple, it was much easier.

I could just fire up my computer, go onto a switching site, and check for the cheapest deal and initiate the switch. Not much more needed than entering your address and bank details and your usage. Many sites would even have your usage available, or you could just chose from a few given examples of houses.

Could easily be done in 15 minutes, going through the supermarket web sites to find who is cheapest takes longer.