Ofgem sanctions Spark Energy’s new social housing prepayment tariff

Spark Energy will launch a new prepayment tariff for social housing tenants from 1 June, which it claims will be the UK’s cheapest tariff for prepaid customers. The supplier says the tariff could help tackle fuel poverty in social housing by making dual electricity and gas supply available for as little as GBP2 per day.

Designed for low energy users, the Affordable Social Housing Prepayment Tariff will feature a zero standing charge, and offer unit rates that are not only lower than Spark Energy’s standard prepayment tariff but are also competitive with its dual-fuel direct debit tariffs. Tenants will also benefit from having no fixed-term tie-ins or exit penalties.

The new tariff will be available only to tenants whose social housing provider has signed up to Spark Energy’s scheme. They will then be free to either take up the tariff or switch to another supplier.

Ofgem derogations

To introduce the new tariff, Spark Energy needed derogations from certain standard conditions in its supply licences, including the obligation on suppliers to offer no more than four core tariffs to their customers. The core tariffs cap stems from Ofgem’s Retail Market Review (RMR) reforms, which aim to reduce complexity in the market and make it easier for consumers to choose the most appropriate deal. Complying with this condition would have required Spark Energy to drop some of its existing core tariffs to make way for the social housing prepayment tariff, which the supplier argued would not be commercially viable. Ofgem granted Spark Energy’s derogation request, on the grounds that the proposed tariff would not undermine the objectives of the RMR and “would be beneficial” to the targeted customers.

The UK regulator also gave the green light for another feature of the proposed scheme, whereby Spark Energy would give the social housing provider a GBP5 credit on their electricity and gas prepayment cards whenever a property becomes vacant. The idea is that the landlord could use this credit to have access to power in between tenancies, while any residual credit would benefit the incoming tenant.

“Better deal” for people in social housing

Prepayment is a common arrangement for tenants in UK social housing but these customers haven’t in the past been able to benefit from the most competitive energy tariffs. In a recent investigation, the consumer watchdog Which? found that six of the eight cheapest deals were only available to those paying by direct debit and that prepayment customers would pay about GBP70 more a year on average than those on the same tariff that pay by direct debit.

Responding to Ofgem’s decision, Spark Energy CEO Chris Gauld said: “People in social housing are on the lowest incomes, use prepayment far more and so find it harder to actively engage in the market to find cheaper deals. We exist to give tenants in the UK a better deal as standard without the need to constantly switch – something that isn’t always practical for those who rent – and to help housing bodies reduce their costs and administration. Those in the affordable social housing sector are uniquely disadvantaged in the market.” Gauld added that by creating the new tariff Spark Energy would be helping social housing providers to “become actively involved in getting social tenants a better deal.”

Tenants in over three quarters of a million UK homes run by social housing providers with whom Spark Energy is already working or is actively engaged could stand to benefit from the new tariff when it is introduced in June. Overall, the UK has around 4.5 million social households.

About Spark Energy

  • Spark Energy UK energy supplierNiche energy supplier to the lettings market
  • Has supplied over 350,000 customers since launch in 2007
  • Annual turnover of over GBP80 million
  • Over 250 staff based in Selkirk in the Scottish Borders.