Energy Suppliers seem unhappy as OFGEM hints at lifting the ban on allowing cheaper energy deals to new customers. Ofgem is considering reversing the ban on low-tariff deals for new energy customers starting this winter. The “acquisition tariffs” will be accessible to the new customers enabling them to switch energy supplier with exclusive prices at discounted rates.
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Energy suppliers in the UK faced gruesome competition in undercutting each other’s prices as energy prices surged in April 2022, the aftermath of the Russian invasion of Ukraine. The ban had come into effect to help stabilise the market and was extended to another year as the prices were still “high and volatile.”
However, with the deadline approaching, OFGEM may lift the ban, allowing energy suppliers to offer exclusive rates to new energy customers. This can translate to a price war between suppliers, who may try to acquire each other’s customers by simply offering them lower prices than their current supplier.
During the energy crisis, the number of people switching between energy suppliers decreased dramatically. An exorbitant increase in energy costs prompted most suppliers to cancel plans below the government’s energy price threshold. It was three times higher in 2021 compared to current rates, eliminating the incentive to shop around for a better bargain.
While some argue this will put the smaller energy providers out of business, others argue that removing the ban will make the energy suppliers work harder to offer competitive prices to the customers.
Here’s the good side of lifting this ban.
- Lifting the ban would allow energy suppliers to offer special rates to new consumers, resulting in a more competitive market. Increased competition can lead to improved consumer prices and services as businesses compete to outdo one another.
- Lower rates and special discounts may benefit new customers, resulting in immediate financial relief, particularly during the winter months when energy demand is highest. This may make switching suppliers more tempting and accessible to a larger audience.
- Energy suppliers might innovate their service offerings by offering unique tariffs. This could include bundled services, loyalty programs, or green energy incentives, which add value beyond lower prices.
- Increased competition and different pricing techniques improve consumer choice. Customers can browse around for the best bargains that meet their requirements and interests rather than being restricted to standardised rates.
The possible repercussions of lifting this ban can be as follows:
- Existing customers may feel disadvantaged if new customers are offered higher rates. This could result in unhappiness and unfairness, harming energy suppliers’ reputations.
- Frequent supplier switching due to special deals may cause volatility in the energy market. Companies may need to help retain a stable customer base, which can affect long-term planning and infrastructure investments.
- While new customers may initially benefit from lower rates, these offers may be limited in duration. Following the introduction time, prices may climb, leaving customers worse off in the long run.
- Ofgem may need help implementing and monitoring the new guidelines. Rigorous oversight will be necessary to ensure that energy suppliers follow fair practices and do not participate in misleading advertisements.
