Centrica Drops as U.K. Price Cap on Energy Bills to Be Extended

Centrica Plc, the U.K.’s biggest energy supplier, fell to a seven-month low after the government announced plans to extend its price cap on the most expensive energy tariffs beyond 2023.

The government wants to stimulate competition in the energy retail market while keeping bills low, according to a strategy published Friday. It also wants to trial automatic switching for when a tariff runs out, which could effectively ban expensive default rates.

The price cap was introduced in 2019 to protect the 15 million British households on default tariffs, and is estimated to save households as much as 100 pounds ($138) a year for those who get their electricity and gas from the same provider.

“We anticipate that the energy transition over this decade and beyond will drive a greater uptake of electric vehicles, smart systems, and smart appliances, which will increase the average consumer’s engagement with their energy use and the energy retail market,” the government said in an open letter. “It is important that structures are in place to enable and support consumer engagement with the market.”

Centrica shares fell as much as 2.8% to 47.94 pence a share in London, the lowest since Jan. 5. Ovo Energy Ltd, the nation’s second-biggest supplier, isn’t listed.

The price cap is expected to be increased by about 125 pounds in line with higher wholesale power and gas prices at the next adjustment at the start of August, according to Morgan Stanley & Co. estimates. The level is updated every six months in line with market prices.

“We had not expected a price cap extension to be under consideration,” Morgan Stanley analysts including Chris Laybutt said in a note.

The price cap has seen negative margins for many energy suppliers, exacerbated by some aspects of the current market design, the government said in the strategy paper.

“A market design that leads to expectations of low margins across the market over a sustained period could stifle innovation,” the government said.

©2021 Bloomberg L.P.

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