Ofgem grants price cap derogation to three suppliers

Three energy suppliers offering renewable energy tariffs have been offered temporary derogations for renewable standard variable tariffs (SVTs) from the default tariff cap which came into force on 1 January. 

The derogations are for SVTs offered by Good Energy, Ecotricity and Green Energy UK, where consumers have chosen a tariff that contributes to renewable generation.

Consumers on default tariffs with these suppliers will still receive price protection, Ofgem confirmed.

These derogations came into effect on 1 January and will remain, unless otherwise revoked or amended by Ofgem, until 31 March this year.

At that point the companies will need to submit further evidence to the regulator to achieve permanent derogation.

Pure Planet meanwhile was granted temporary directions for “alternative compliance assessment for the default tariff price cap”.

This is on the basis that the company’s non-standard charging structure means that applying the price cap would “not have been in the best interest of most of its consumers”, according to Ofgem.

This derogation will remain in effect until 31 December this year, unless otherwise revoked or amended by Ofgem.

Steven Day, co-founder of Pure Planet, said:”Pure Planet’s transparent and great value tariff complies with the cap; our members will never end up paying more. And they get clean renewable electricity and carbon offset gas.

“Only some green suppliers have applied for the derogation – which means their customers will potentially pay more than the cap – but not all renewable suppliers have done so.

“Pure Planet, and some other non-derogated green suppliers, shows that it’s feasible to offer green power for less than the cap.

“Charging over the odds for renewables needlessly perpetuates the myth that green electricity has to be more expensive than fossil power – it doesn’t.”

In response to the Good Energy being granted the derogation, the company’s founder and chief executive Juliet Davenport, said: “If Britain is to kick its fossil fuel habit, long-term investment in renewable energy is required; Ofgem has recognised that Good Energy is distinct from other suppliers in providing that investment.

“Derogation means we can continue paying generators a good price, establishing a clean energy marketplace.

“It also means our commitment to research and development, particularly home energy generation, is strengthened.”

Doug Stewart, managing director of Green Energy UK, added: “It is interesting that the three longest standing independent suppliers, which also happen to be green, all sought and obtained a derogation from the price cap.

“This indicates that both they and Ofgem recognise the true cost of supplying future energy.

“The support of generation of green electricity and gas outside the mandatory schemes is a real expense, but also a choice that should not be denied to those consumers with green agendas.”

Dale Vince, founder of Ecotricity, said: “The price cap is designed to stop the widespread market abuse of differential pricing, something we’ve never done.

“The derogation for the cap is designed to allow genuinely green energy companies to continue to innovate, something we’ve always done and we’re very pleased to have it, and to be able to continue with our unique bills into mills model.”

Concerns have previously been raised over the issue of derogation, with industry voices such as Greg Jackson, chief executive of Octopus Energy suggesting the move creates a green tariff “loophole”.

Presenting evidence to the House of Commons during the committee stage of the price cap bill, the CEO raised concerns that companies could use the low carbon exemption to continue overcharging customers.

The government has previously 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.”

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.”