Ofgem says energy market competition weak, prices too high

Competition for household energy customers is weak and high prices paid by vulnerable people is unacceptable, the industry regulator said.

Publishing a report into the state of the UK energy market, Ofgem's chief executive, Dermot Nolan, said more than half of customers had never switched supplier or had done so only once while 60% are on variable tariffs instead of cheaper fixed-price deals.

The number of customers on poor-value deals has come down over the past two years but not quickly enough, Nolan said.

"If competition was working really well, we'd expect to see the benefits felt by all consumers. That’s not the case at the moment," he said.

Bills have fallen from their 2013 peak but are still higher in real terms than 10 years ago. Poor customers are also less likely to shop around for better deals, Nolan said.

In early October, the prime minister announced a plan to cap energy prices to end "rip-off" bills, sending shares of Centrica, which owns British Gas and is the UK's biggest energy provider, to a 14-year low of 179p.

The government's proposed cap on standard variable tariffs is unlikely to start until winter 2019. In the meantime, Ofgem has limited prices for 1m customers this winter and plans to extend the cap to 2m more next year.

Nolan said: "Those who can afford their bills are more likely to get good deals anyway. Meanwhile, those on the lowest incomes tell us they’re least likely to have switched supplier. This disparity is unacceptable."

Centrica shares were little changed at 170p at 12:38 GMT. Shares of SSE, another of the UK's big energy providers, were also little changed.

Nolan said more investment is needed in green energy for Britain to meet targets for emissions reduction after 2022.