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What does the energy price cap mean for businesses?

The biggest announcement of Party Conference season was Theresa May’s pledge to introduce a price cap on consumer energy bills in an attempt to fix a ‘broken energy market’.

The biggest announcement of Party Conference season was Theresa May’s pledge to introduce a price cap on consumer energy bills in an attempt to fix a ‘broken energy market’.

In her keynote speech at the Conservative Party Conference in Manchester, the Prime Minister confirmed that the price cap promised in her election manifesto would be going ahead in order bring an end to “rip-off energy prices once and for all”.

The government will now give Ofgem powers to introduce a “temporary” cap on the most expensive Standard Variable Tariffs, which are currently being paid by around 12 million domestic customers. 

The plan does not directly impact businesses, except any micro-companies that may be on a domestic tariff.

Knock-on effects?

However, while the reaction from energy suppliers cannot yet be predicted, there is potential for knock-on impacts which could implicate the business community.

Depending on the level of the cap, which will be decided by Ofgem, energy suppliers could be encouraged to recoup their losses in other areas, for example by withdrawing cheaper deals or increasing costs elsewhere. 

The policy announcement alone wiped nearly £1 billion off the value of Centria and SSE, the two British-listed major energy suppliers. 

In the worse possible scenario, a lack of competition in the market might result in suppliers pushing up the price of their business contracts.

Picking up the bill

When the price cap pledge was first revealed in the lead up to the 2017 General Election, energy consultancy Utilitywise warned of this very scenario.

“By introducing a cap for the domestic market, and making energy-intensive industries exempt from policy costs, the only sector left to pick up the bill is small businesses, who are caught in the middle”, the company had told The Independent.

Commenting on the announcement in Manchester, Adam Marshall, director general of the British Chambers of Commerce, echoed these concerns: “Attention must be paid to avoid unintended consequences that drive up costs to consumers or businesses.”

Although businesses should be unaffected if the market works correctly, those that purchase energy from providers that also serve domestic customers should nevertheless keep an eye on their energy bills over the coming months.