The UK's energy stocks have felt the pressure from the Conservative party's planned energy price cap this morning as they dropped to the bottom of the blue-chip index.
Prime Minister Theresa May yesterday confirmed the Tories will cap energy prices if elected in June. The cap on standard energy tariffs will affect around 70 per cent of customers of the so-called Big Six energy firms and save families as much as £100 a year, she said.
John Musk, analyst at RBC Capital Markets, said energy shares are being hammered down by confirmation the price cap will apply to all standard variable tariffs rather than a subset of vulnerable customers as some had suspected. This could hit Britain's utilities by a potential 20 per cent decline in earnings per share at Centrica and a 15 per cent decline at SSE in the 2018/19 financial year.
Energy firms have come under fire as bills doubled over the past decade to an average of around £1,200 a year.
However, bosses of utilities including Centrica and ScottishPower have spoken out against the price cap, saying it will hurt customers in the long run.
Josh Hardie, deputy director-general of the Confederation of British Industry, agreed. “A major market intervention, such as a price cap, could lead to unintended consequences, for example dampening consumers’ desire to find the best deal on the market and hitting investor confidence.”
Hardie added: “The Competition and Markets Authority’s (CMA) thorough two year investigation identified low levels of consumers switching energy providers as a challenge, and put forward a range of recommendations to address this. It is important that these measures bed in before looking to further interventions."
Energy secretary Greg Clark today defended the move in an interview with the BBC, saying the Conservatives were spurred on by the CMA's report. He said the CMA was "in two minds" about recommending a price cap for standard tariffs, but agreed the Tories are going further than the CMA with their proposal.
Greg Jackson, chief executive and founder of challenger Octopus Energy, sided with the Conservative's thinking. "We'd support a relative price cap for all households and businesses, to turbocharge competition among the 40-odd energy suppliers and bring better value to everyone," Jackson said.