Theresa May’s price cap on energy bills would be a backward step that hits competition, deters new companies and hurts consumers, the head of one of the country’s biggest energy firms has warned.
Michael Lewis, UK chief executive of big six supplier E.ON, rejected the prime minister’s claim the energy market is broken and said plans for a cap on 12m households would backfire.
The government is due to publish draft legislation on Thursday to enable a ceiling on “rip-off” standard variable tariffs, arguing consumers are collectively paying £1.4bn too much for energy. The government’s hand was strengthened after a round of price hikes on those tariffs this year.
But Lewis said a cap was the wrong idea at the wrong time. “We are actually in a situation where the market is working quite well. We have 60 competitors. We have high levels of switching ... A cap will actually dampen competition, reduce engagement and take us backwards,” he said in an interview with the Guardian.
“There will be less incentive [for new challenger firms] to come into the market, and customers will have less incentive to engage with the market,” he added. The result would be households are disadvantaged rather than helped, he said.
Instead of capping bills, ministers should embark on a nationwide insulation programme and help energy suppliers install smart meters, which Lewis said would drive up consumer engagement in the market.
“Our view has always been that the problem here is not a price problem, the problem is an engagement problem. Not enough customers engage with their supplier,” he said.
He said the company’s investment in smart meters and renewables – the firm recently finished a windfarm off the Sussex coast – were at risk from a cap. “All that investment is predicated on us being successful in the market,” he added.
Lewis would not be drawn on whether the German-headquartered company would cut costs to adapt to a cap.
On Tuesday, a credit ratings agency said the cap would exacerbate pressures on the big six energy suppliers’ profit margins, which are at record high.
S&P Global said the impact would be greatest on UK-based Centrica and SSE, who are more exposed to Britain’s domestic supply market. Centrica’s chairman and chief executive have sought to reassure investors this week by buying more than £250,000 worth of shares in their company, which owns British Gas.
There is an increasing industry consensus that there is no future for standard variable tariffs which May plans to cap.
Scottish Power said this week that it would start rolling customers onto cheaper fixed deals instead, following a recent announcement by E.ON that its smart meter customers would no longer default onto standard variable tariffs.
“The standard variable tariff is over,” said Lewis. “We want to be on the front foot in defining what the new world looks like. That new world is a smart world, with engaged customers, where we can offer not just different tariffs … but also the right energy solutions, things like smart thermostats, high efficiency boilers, solar PV [photovoltaics, ie solar panels] and batteries.”
He said the UK energy system was undergoing a “revolutionary” period of change, as more power is generated at a local level, and described electric vehicles as a “game changer”.
But this greener, more decentralised future was at risk from a cap, he said. “A price cap at this stage is not the right thing to do, it’s tackling a perceived problem of yesterday, whereas the real challenges are ahead of us.”
A better way to cut household bills would be for the government to encourage the uptake of smart meters, Lewis said, such as by ensuring traditional meters that come to their end of life are replaced with smart ones.
But he said if could wish for one change, it would be for the UK’s draughty housing stock to be upgraded to the highest energy efficiency standards. “If we really want to drive down customer bills, a really focused scheme to insulate the UK’s housing stock is absolutely critical,” he said.
This article was written by Adam Vaughan, for theguardian.com on Tuesday 10th October 2017 17.48 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010