Exempting green tariffs from price cap opens ‘loophole’

Exempting green tariffs from the proposed energy price cap legislation opens up a potential “loophole”, ministers have been warned.

Presenting evidence to the House of Commons during the committee stage of the price cap bill, Octopus Energy, chief executive Greg Jackson raised concerns that companies could use the low carbon exemption to continue overcharging.

The government has proposed the low carbon energy tariffs should be exempt from the broader cap on standard variable and other default tariffs.

Jackson said: “What we cannot allow is a loophole that allows exploitative suppliers to create fake green products in order to evade the cap.

“It should not allow what we are seeing already, which is two of the big six launching green products since the bill has been under discussion. I do not want to sound cynical, but I cannot help feeling there is a connection.”

But he said the exemption needed to be tailored to allow specialist suppliers like Good Energy to continue offering tariffs to highly informed customers.

Bulb Energy co-founder Hayden Wood backed Jackson. He said: “We see no reason why renewable suppliers should be exempt from this cap, because my view is that Bulb can provide 100 per cent renewable electricity, at a rate that is at least £200 lower than the cap.

He added that the extra cost of providing green gas to domestic customers, which worked out at £25 to £50, was dwarfed by the £200 gap between the best tariffs in the current market and the most expensive tariffs likely under a capped regime.

But an exemption for green tariffs was defended by Good Energy, chief executive Juliet Davenport on the grounds that setting up low carbon tariff products often involved additional costs.

She pointed as an example to the company’s pilot scheme with Cornwall’s Eden Project to explore buying storage, which had involved the establishment of a management team.

During the session, which is designed to provide detailed scrutiny of the legislation, Jackson also criticised the focus on switching as the key measure of a healthy energy supply market.

“The idea that very high levels of switching is a good thing is outdated. For 20 years, consumers have been told that they have to switch; in any given year, no more than 15 per cent to 20 per cent will do so. All the rest are getting ripped off.”

But he said that a cap set at a “realistic” level would still provide “plenty of room for competition”.

“Competition among the challengers that have to fight for and win every single customer from scratch will be unabated.”

Wood said he saw no reason why a cap would disincentivise low carbon energy investment.

He said: “The introduction of a price cap would be a big stimulus to investment in renewable generation, because it would mean that more and more homes could choose to buy their energy from a low-cost, efficient renewable supplier.

Jackson agreed that investment would not suffer because of a price cap.