Monday 25 March 2024

Ofgem launches review of energy price cap

Ofgem launches review of energy price cap

Ofgem, the energy regulator, has launched a consultation aimed at reshaping the price cap to ensure customer protection amidst the ongoing evolution of the energy market.

The price cap, initially introduced alongside a temporary ban on acquisition-only tariffs, has been effective in shielding consumers from the ‘loyalty penalty’ and mitigating the impacts of recent market volatility and wholesale price surges prompted by the energy crisis.

However, with a shift towards more flexible and smarter energy consumption, marked by the increasing adoption of electric vehicles, heat pumps and solar panels, alongside the dominance of renewable energy sources, Ofgem acknowledges the need for adjustments.

The regulator highlights the importance of revising energy regulations to safeguard consumers, ensure fair pricing and capitalise on the benefits of transitioning to a net zero economy.

The consultation paper released by Ofgem explores various options for the future of price protection, including the implementation of a more dynamic cap with time-of-use dependent unit rates to incentivise consumer flexibility and the introduction of targeted caps based on factors like vulnerability.

Additionally, Ofgem considers more flexible, market-based price protection mechanisms such as capping supplier margins or replacing the cap with a ban on acquisition-only tariffs.

Ofgem emphasises the necessity of gathering input from stakeholders ranging from charities, consumer groups and businesses to inform their decision-making process.

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 are 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.”

Written by

Dimitris Mavrokefalidis

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