A challenger energy firm is hoping to win back consumer trust in the industry with the launch of a tariff that shows how much profit it is making from households.
Octopus Energy said its new deal would use an app to display the profit margins it made on an account, alongside the wholesale prices it paid for electricity and gas.
The big six energy suppliers – British Gas, EDF, E.ON, Npower, Scottish Power and SSE – have been criticised for being slow to pass on falling wholesale costs, while being swift to impose rising prices on customers.
Npower blamed wholesale prices when it announced the biggest increase in the recent round of price hikes, but the industry regulator, Ofgem, has said the rises have been hard to justify.
Greg Jackson, founder and chief executive of Octopus, which has attracted 90,000 customers since launching a year ago, said he expected transparency to become an increasingly important selling point. “The debate over price rises – where the regulator is saying there is no justification for them and the big six are saying there’s no choice – it’s hard for people to know what’s true,” he said. “This tariff is the first guarantee that you won’t get ripped off.”
The cost of the dual fuel tariff – for electricity and gas – would be about £907 a year based on Friday’s wholesale prices, compared with the £1,044 to £1,160 the big six suppliers are charging customers on the most commonly used deals.
The Octopus price will change daily to reflect how much the company is paying to buy electricity and gas from the market. The app will show the profit margin the firm is making, which it expects to be about 10% rather than the 30% the bigger suppliers make.
While Jackson said it was unlikely most customers would want to track the price daily, the supplier would be publishing its figures as an open source formula, allowing customers to “look very closely” and hold the company to account.
The arrival of smart meters, which measure energy usage exactly and will be fitted in every home by the end of 2020, would make the cost breakdown even more accurate and “put us on steroids”, Jackson said. “At moment, we are on estimated consumption; in a smart meter world we’re using actual consumption.”
The consumer group Which? said it was the first product it was aware of that tracked prices on a daily basis.
This week will also see the debut of one of the biggest new entrants into the UK energy market for several years. Engie, a French energy giant, started supplying UK homes with electricity and gas this year but is yet to release customer numbers. On Thursday, the firm, a major gas supplier in Europe, will announce a new deal that will also promise greater transparency.
Energy prices and the overcharging of millions of customers have risen up the political agenda in recent months, driven by five of the big six companies raising prices.
Ministers have promised “strong and muscular” action to rein in energy costs and the Conservatives have promised to cap standard tariffs, which could save millions of families £100 if they are re-elected in June.
The pledge saw shares at UK-listed the SSE and British Gas owner Centrica slide last week. Analysts at the investment bank Jefferies said they expected SSE to take an 8% hit to its earnings before interest and tax in 2018-19, and a 20% reduction for Centrica.
While the Conservative party has focused on price caps, the Labour and Liberal Democrat manifestos are expected to place a strong emphasis on the need for improving the efficiency of Britain’s homes, which are some of the draughtiest in Europe.