What will a price cap freeze mean?

[BergamotMouse]

Will they freeze it at the current price cap or is it likely to be frozen at October price cap?
I know we don't know what will be announced but I can't find anything about what the plan might be.

No one knows. 6 energy bosses presented plans and this was on a number of them but in slightly different ways. I think one of the later suggestions was to hold all the prices per kwh and standing charges where they are right now. So no cheaper, but no more expensive. But this would need to be paid back by us over 10 years, meaning that when gas prices drop (if they do) our prices per kwh/standing charges will not drop - they will stay at the current price or higher for 10 years or so. A mechanism would need to be in place to allow them to raise in line with inflation/wholsale prices but still with extra p added on to pay back the next year or so of frozen prices.

I’m glad you posted - I was musing about starting a thread titled “Does anyone fancy joining in some pointless speculation about the energy plan ahead of Thursday’s announcement?”

Two things occur to me.

Firstly - will this plan apply to all tariffs, or only the standard variable rates? For example, I am with Octopus on Gas Tracker until next April and Go Faster until next July - in both cases, I am saving money compared to the current variable tariffs. So if the new scheme means that variable rates are frozen at current levels but does not apply to fixed tariffs, then when my current tariffs end, the new versions which Octopus offer are likely to be way higher than I’m on now - if the world energy market is still mad. I guess that means I would join the 85% of the population now on default tariffs.

The other thing that occurs is - is this a scheme whereby you as a individual can choose how much you pay and just run as large a deficit as you need to with your provider, effectively an interest-free government-backed loan. And when prices start to come down, you continue paying the same amount, and gradually pay back your loan.

But if you could afford to pay at the real price, you just pay it and don’t have the loan.

Not expecting anyone to be able to answer these questions - just some musings of mine.

I don't know what I want to happen to be honest. We will spend the next however many years paying back for any help given through our taxes, but at the same time energy prices now are unaffordable. The govt fixing prices won't lower the wholesale price so presumably suppliers would be operating at a loss, and this would have to be government backed, which is ultimately backed by our taxes. There's no easy call here.

I’m praying it will be at the current September cap.

I’m praying it’s stuck at current ( September 2022 levels
I simply can’t afford more.

Short answer: We don't know yet!!

My guess is that there will be the autumn rises already in the pipeline, but then perhaps no more.

So it's still an enormous rise, but it won't seem so bad as we were being softened up to expect worse (no, I don't think 'they' did it on purpose, I don't think they have the capacity to forward plan effectively any more)

There might however be opportunity costs if money that could have been spent elsewhere had to subsidise energy. Who knows what that will bite?

Just as worrying (I think) is that there is no end in sight to the high prices.

Barring a catastrophic failure of Russia, leading to them becoming desperate to sell gas (this is so far fetched) - what else is ever going to really bring the price back down? At least in the next decade?

I don’t think it will include the new October price cap because that’s what’s unaffordable for many people, pensioners and people on low and middle incomes, and businesses would go under with energy fixed at those prices. From what I’ve read they’re ‘borrowing’ Labour’s policy of fixing the price cap at the current level but extending it until the next general election. We might hear as soon as Thursday what the plans are. It’s a worrying time as we’re on the standard variable tariff and it will become unaffordable from October onwards.

Do we know if it was energy suppliers like octopus that were proposing things (they don't make much profit from this) or the big generators like BP etc?

I bloody don't want the ones creating the high prices suggesting how we deal with it. Although I'm already assuming we'll pay for it eventually, rather than the thing that should be done which is cap generation prices across Europe, potentially putting gas supply under a war/sanctions category to prevent profiteering (which is what they're doing right now)

Instead we'll figure out some half arsed scheme to pay back over 20 years like a gas mortgage, while BP and Shell make billions of unnecesssary profit from the war in Ukraine.

The waiting to find out what they will do is just horrible.

I don't know but waiting for the detail as I am on a fixed rate which will not be worth staying on if it is frozen so may have to pay exit fees to go back onto SVR, I imagine the energy companies are going to be bombarded with customers on fixed rates.

Panorama had an interesting take on this last night.

l think, but can’t be sure, that a good percentage of UK electricity comes from nuclear and wind power. Yet electricity prices are rising as fast as gas prices, when there is no need to.

It's a tricky one. The reason prices are so high is that there isn't enough supply to meet demand. Therefore rising prices leads to cutting back. If we artificially keep prices low we run the risk of blackouts in the winter, particularly if nordstream 1 remains off all winter.
So somehow the government needs to make prices affordable to all as well as encouraging us to cut usage. When I talk about cutting usage I mean those who use excessive energy rather than asking people who already use little and don't heat their homes much to cut back further. We do also need to cut our usage for climate reasons until all our energy is renewable but many people will only do this when it is linked to being unaffordable.

waiting for the detail as I am on a fixed rate which will not be worth staying on if it is frozen so may have to pay exit fees to go back onto SVR,

Same here. Fixed dual fuel with British Gas in July until Oct 2023. Gone up from just under £3k pa SVR to just under £5k pa fixed 🤷‍♀️

There seems to be a bit more about this in the news today. Not much detail though.

I had assumed, wrongly perhaps, that they couldn't possibly get a freeze on the cap organised in the next three weeks and that it would apply to the January rise and forward until gas prices stabilise.

My understanding was that in the initial proposal, the government would loan the energy companies the £100bn so they didn't need to pass the extra costs onto consumers. However the energy companies would pay it back in much smaller amounts from their huge profits but over 10 years. That way shareholders still get their slice of the pie but consumers aren't left without heating.

Maybe I dreamt that! But it would be exceptional unjust if the government loaned a load of money to the Big 6 who then make a load of profit but the taxpayer has to repay the loan!

If they're paying to the suppliers, they don't make a lot of profit so won't be able to pay it back out of profits. More like we'll see another 'surcharge' on oru standing charge like last time they added it to cover the costs of other suppliers going bankrupt (heaven forbid these companies actually run with the risks a normal business has)

The ones making insane - immoral - profits are the extractor/generators the people selling the gas to octopus/ovo etc. Literally profiting from a war. Their price should be capped

otherwise the government is just spending billions to line the pockets of big oil and gas

More like we'll see another 'surcharge' on oru standing charge like last time they added it to cover the costs of other suppliers going bankrupt (heaven forbid these companies actually run with the risks a normal business has)

The leaks are saying this won't happen. That the payback will come out of taxation, not out of customer surcharges.

No idea how true that is but, every news article I've read from later in the day are saying it.

It's looking like a cap of £2500 for the average home. That's a bit above the current prices (avg £1971). However, the £400 rebate still applies. Bringing it down to £2100. I suspect the green levies might also still get cut. Making it £1950 - ish.

This government set cap to last 18 months, maybe.

Paid back from taxation over 10-20 years (!!!).

Not much more detail yet and some rumours that the formal announcement might not be Thu, as previously expected. Might slip to next week. I suspect that's how come there is such a detailed leak - to keep noise levels down while the announcement slips back.

I hope the suppliers allow customers who recently fixed to go back to the SRV if this happens. Dd fixed in a panic last week and will be overpaying by quite a lot if the cap drops

What the penalty on your fix, @mrsrhodgilbert ?

Even without anything 'allowed' by the government it may well be worth getting out onto the SVR and paying the penalty.

That said, an idea might be to just waive any penalties for people who want to leave a fixed tarriff to go to the SVR if this freeze happens. I guess they are the kinds of details that take ages to work through once the main idea has grown legs.

You have 2 weeks cooling of period if your fix was only last week maybe cancel it.

I ve just canceled mine today as within the cooling off period and back on the svr

Seems ridiculous to subside everyone's bills by the same amount. I think unit prices should be fixed up to a certain amount of energy usage, then a higher rate applied to usage above that. Customers who have higher usage due to disability, being elderly could receive direct rebates in addition.

This also incentives lower consumption across the board to promote insulation, solar panels etc.

And it should be wholly/partially paid for by windfall taxes on energy companies making excess profits.