Energy regulator Ofgem has launched a discussion into the price cap due to “energy market evolution”.
The organisation launched a consultation on Monday (25 March) on developing the price cap so customers remain protected as the energy market evolves to a smarter, more flexible system.
The energy price cap was implemented to ensure that suppliers and customers are not subject to radical increases and high energy bills, striking a middle ground between the two.
This is something Ofgem believes has worked well to ensure customers are not at risk of the ‘loyalty penalty’ whereby customers on default tariffs pay higher prices. The organisation also believes it has served its purpose well in sheltering customers from the energy crisis.
Energy retail markets are changing as consumers increasingly change their energy consumption and use electric vehicles (EVs), heat pumps and solar panels. As such, the increasingly renewables-dominated electricity sector is expected to reward consumers for shifting the time of their electricity consumption, which will, in turn, reduce costs for everyone, Ofgem said.
New policies to help ‘reap the benefits of the energy transition’
The energy regulator is evaluating how the energy price cap and overall energy regulation should be adjusted to ensure that customers are protected, pay a reasonable price for their energy, and can reap all the benefits of transitioning to net zero emissions.
Introducing half-hourly settlements in 2025 means customers will have more flexibility in using and paying for electricity. It is expected to lead to a growth in smarter time-of-use tariffs that reward customers for being more flexible in their energy usage.
Ofgem noted that this will allow consumers to benefit from cheaper energy when renewable generation increases, mainly when it is windy or sunny.
Tim Jarvis, Ofgem’s director general of retail and markets, said: “While the price cap played an essential 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.”
Jarvis concluded: “We will continue to work with government, industry, consumer groups, charities and the public on the future of pricing regulation. Our aim is to ensure the market works for everyone.”
