Last month many suppliers started to anticipate the price cap rising to £1,254/year on 1 April by increasing their standard variable tariffs (SVTs) to meet the new cap level. As a result, of this upward pressure on SVTs, the gap between default and market-based fixed tariffs increased.
Research from Cornwall Insight shows that at the end of March, the average gap between a large supplier’s SVT and cheapest fixed tariff increased by a substantial £92/year to £193/year. The below graph shows this rising trend and illustrates how the gap between tariff types has reached the highest point since February 2016.
Kate Hill, senior analyst at Cornwall Insight, said: “The increasing trend in the gap between the larger supplier SVT and cheapest fixed tariff is an interesting one. Reaching £193/year this gap is the highest Cornwall Insight recorded in over three years, at a time when the regulatory landscape was very different.
“Small and medium suppliers (SaMS) have not been immune to the rising trend as the average gap between the tariff types has increased by £13/year to £40/year. Although, the gap has risen the competitive nature of SaMS has kept the increase to a minimum.
“Cornwall Insight’s measure of wholesale energy costs for tariffs now stand at £346/year, reaching the lowest point since April 2018, creating a real juxtaposition for suppliers. With fixed tariffs continuing to fall in response to the lower wholesale costs. However, at the same time, SVTs are rising to meet the new price cap.
“The widening gap is primarily attributed to lags in the price cap methodology which have so far captured the surge in the wholesale market last year when they peaked in September at £521/year on our tariff cost measure. Cornwall Insight forecasts predict that Ofgem’s cap will reflect the downward wholesale market trend since this point in the price cap from 1 October 2019.”