A new energy price cap is coming into force in the New Year. What does this mean for businesses, particularly those with high energy costs and those working from home?

The energy regulator, Ofgem, has determined that a limit of the price that energy companies can charge will come into force on 1st January 2019.

It's not a limit on the size of the bills, instead it limits the price they can set on a given unit of energy. The caps will be 17p per kWh on gas and 4p per kWh on electricity. Ofgem believes this will lead to bills capped at £1,136 for a year for the "typical user".

The cap is based on the default rate, not any special deals, time-limited fixed rates or special offers.

Switching makes sense

Although the cap will cause some suppliers to rework their rates, comparing prices frequently and switching to the most favourable tariff will yield better savings for most consumers than relying on the cap.

Having said that, the price cap will almost certainly only come into force for customers on default rates. Getting away from those therefore makes complete sense; yet despite that, over half the households in the country are still on them.

Apart from anything else, Ofgem has warned that the cap level will be reviewed in February, with a view to adjusting it in April and/or October each year. So it may rise in April 2019, reducing savings for those relying on the cap

That should encourage more people to switch.

Energy suppliers

Ofgem insists that the cap will only be raised in the future if the real costs of providing gas and electricity rise, rather than to allow increased profits. As you might expect, energy suppliers aren't that happy with the idea of a cap.

The BBC quoted Lawrence Slade, the CEO of Energy UK which lobbies the government on behalf of energy companies, as saying the cap will represent a "significant challenge" for 70 or more suppliers operating in the domestic energy market.

His concerns are that restrictions like this will prevent investors from putting their money into the energy sector. That in turn could restrict innovation and engagement which apparently deliver benefits to customers.

Limited time?

In any case the cap may not last long. There is an Ofgem review of the cap's effectiveness on the energy market planned for 2020, when a recommendation will be made to the then secretary of state as to whether or not it should stay in force.

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