Measures to improve competition in he energy market (Example)

Pre-pay meters are often found in domestic rented property as the rent paid usually does not cover utilities owing to the difficulty in enforcing charges, especially with short-term tenants. The prepayment market  is less developed than for those who pay by direct debit, cash or cheque. This means that there are fewer tariffs available to these customers and the tariffs that are available are generally more expensive. with fewer suppliers to choose from, demand is price inelastic. 

Buyers are unlikely to switch so prices will be high and consumer surplus, small.  The cap will initially apply to over four million households who prepay for their energy, and will vary for electricity and gas, by meter type and region. Ofgem estimates that many prepayment customers are likely to see reductions in their gas bill of around 10-15% from 1 April 2017 or around £80 a year based on a typical household’s consumption.

Many prepayment customers who use electricity to heat their home such as those on Economy 7 meters will see their electricity bill fall, with reductions of around £80 a year based on a typical household’s consumption.

If the cap is too low, there will be excess demand that is not being met by supplers. Fuel poverty will be replaced by lack of supply of energy.