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Price Cap Shakeup? Ofgem Considers Options for a Changing Energy Market

  • Ofgem is considering a "time-of-use" price cap that would charge different rates based on when households use energy.
  • This change is being driven by the increasing use of electric vehicles, heat pumps, and solar panels.
  • Ofgem is seeking public input on the future of the price cap and potential alternatives.
Electric Meter

A “more dynamic” price cap could be introduced by Ofgem based on the time of day households use its energy, it has been revealed.

The energy regulator has launched a consultation on a range of options for the future of the price cap including on with a “time-of-use dependent unit rates to encourage consumer flexibility”.

Ofgem is also considering introducing a targeted cap which could be based on a variety of factors such as vulnerability, and more flexible, market-based price protections such as setting a limit between a supplier’s default tariff and tariffs available in the market, capping the margin suppliers are able to make, or replacing the cap with a ban on acquisition-only tariffs.

The regulator said the price cap, along with the temporary ban on acquisition-only tariffs, had worked well to protect customers from the “loyalty penalty” where customers on default tariffs paid higher prices, and from the worst of the recent volatile markets and wholesale price surges as a result of the energy crisis.

But it said energy retail markets were changing as increasing numbers of consumers changed their energy consumption and began using electric vehicles, heat pumps, and solar panels.

Ofgem added that as customer diversity grows, and more households adopt time-of-use tariffs, it “could become harder to retain a universal price cap that is suitable for everyone”. 

It also said that while price protection “will remain an important part of the energy market”, it is asking charities, consumer groups, businesses, bill-payers and suppliers for their views as well as proposals for future alternatives. 

Tim Jarvis, Ofgem’s director general of retail and markets, said: “While the price cap played an important role in protecting consumers from the loyalty penalty that existed before its introduction, the energy market is changing as we move to net zero, and we recognise the systems we have in place may need to change too.

“We’re looking in detail at the elements of the price cap that have worked well and the challenges we’ve identified in recent years, while also considering how a wide range of future consumers will use and pay for energy, to make sure we develop the right measures that will protect and benefit consumers across the board.

“We will continue to work with government, industry, consumer groups, charities and the public on the future of pricing regulation. Our aim is ensure the market works for everyone.” 

The deadline for the consultation has been set for 6 May.

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