Capped Prices
'Capped Price' deals have been around since 2003, when ScottishPower introduced the first such tariff. The idea is simple - energy prices had started to increase, so why not offer consumers a premium gas and electricity tariff that would stay put for a number of years? The consumer would be protected against gas and electricity price spikes during the capped period and energy suppliers gained, too: ScottishPower could be reasonably sure to hold on to their 'capped' customers, at least during the capped period.
Capped prices have since become a standard offering with most of the major gas and electricity suppliers. Suppliers buy gas and electricity to cover the needs of a number of customers, and then create a tariff based on these prices. Once the allocation of gas and electricity is filled, the tariff is then withdrawn from signup. Capped gas and electricity tariffs are currently available from EDF Energy, Powergen, British Gas and npower. The period during which a price is capped ranges between 2 to 4 years, depending on the offer.
Consumers thus take a leap of faith: they are betting on energy prices to increase in the future, in order to offset the premium they are paying over cheaper uncapped gas and electricity tariffs in the near and medium term.
So do customers actually benefit from capped deals?
ScottishPower's first capped price was available for sign-up in mid 2003, and the Capped period expires in December of this year. At the time of signup, customers willing to switch to this tariff were on average asked to pay 9% more than the cheapest alternative (uncapped) deal.
The table below illustrates whether these customers have made up this difference since then, or whether they would have been better off by repeatedly switching their energy supplier to the cheapest deal.
Capped versus cheapest uncapped tariffs
| ScottishPower Capped May 2003 |
versus cheapest uncapped |
Atlantic Electric & Gas
May Direct 2003 |
|
Comparative Savings |
| £ 286 |
|
£ 271 |
Low user |
£ -15 |
| £ 557 |
|
£ 470 |
Med user |
£ -87 |
| £ 779 |
|
£ 728 |
High user |
£-51 |
| ScottishPower Capped May 2003 |
versus cheapest uncapped |
Powergen Online
November 2003 |
|
|
| £ 286 |
|
£ 253 |
Low user |
£-33 |
| £ 557 |
|
£ 552 |
Med user |
-5 |
| £ 779 |
|
£ 792 |
High user |
£13 |
| ScottishPower Capped May 2003 |
versus cheapest uncapped |
ScottishPower Online August 2004 |
|
|
| £ 286 |
|
£ 250 |
Low user |
£-36 |
| £ 557 |
|
£ 549 |
Med user |
£-8 |
| £ 779 |
|
£ 790 |
High user |
£11 |
| ScottishPower Capped May 2003 |
versus cheapest uncapped |
npower sign Online
August 2005 |
|
|
| £ 286 |
|
£ 275 |
Low user |
£ -11 |
| £557 |
|
£605 |
Med user |
£48 |
| £ 779 |
|
£ 870 |
High user |
£91 |
| ScottishPower Capped May 2003 |
versus cheapest uncapped |
Atlantic Electric and Gas signup May 06 |
|
|
| £ 286 |
|
£ 400 |
Low user |
£114 |
| £ 557 |
|
£ 740 |
Med user |
£183 |
| £ 779 |
|
£ 1,167 |
High user |
£388 |
|
|
|
|
|
| Total saving during three year period |
Low user |
£19 |
| Total saving during three year period |
Medium user |
£131 |
| Total saving during three year period |
High user |
£452 |
Calculations are based on annual consumptions of 1,650 kWh (low), 3,300 kWh (medium) and 4,950 kWh (high) for standard rate electricity and 10,000kWh (low), 20,500kWh (medium) and 28,000kWh (high) for gas.
The table shows that consumers did well to sign up to ScottishPower's 2003 capped tariff. Households across all usage bands benefited, with high users pocketing large savings of more than £450 between 2003 and 2006, compared to the cheapest uncapped deals available. Add to that the convenience of not having to switch supplier once a year, and it might be suggested that capping your energy tariffs was and is the way to go.
Alas - no. Consumers looking for a similar good deal on capped energy today will find themselves disappointed, as suppliers have sharply increased the premium it takes to 'cap' a tariff. For example, the price difference between Powergen's current 'Capped 2010' gas and electricity tariff is a steep 22% next to the cheapest uncapped deal. Taking into account that analysts are now predicting a net fall in the cost of gas and electricity from 2008 onward, consumers would be better advised to stick with the cheapest available uncapped deals for the next 18 months.
As the saying goes, hindsight is 20/20 - had we known that energy prices would nearly double in just three years, we all would have switched to the ScottishPower Capped Tariff in 2003. Unfortunately, the massive increase in the underlying (wholesale) cost of gas and electricity has changed the game: gas and electricity suppliers have become risk-averse and have priced their current capped tariffs accordingly, making it less likely for consumers to achieve savings in the longer term.
Our advice: If you are using a capped tariff, and would like to check if you are getting a good deal, take advantage of our Advanced Search tool, which will allow you to enter your capped unit rates and produce an exact savings comparison with all current tariffs in the market.
