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Ofgem introduces new short-term measures in effort to stabilise supplier market

In 2021, 27 suppliers collapsed as a global gas shortage led to wholesale power prices surging. Image: Getty.

In 2021, 27 suppliers collapsed as a global gas shortage led to wholesale power prices surging. Image: Getty.

Ofgem has brought in two new measures to help stabilise the supplier market in the wake of the slew of supplier collapses in 2021.

The short-term measures are designed to protect consumers, the regulator said, in the face of the “unprecedented increase in global gas prices; a once in a 30-year event".

Suppliers must now offer all existing customers the same deals that are available to new customers.

A spokesperson for Ofgem said: “This will ensure customers can benefit from all tariffs available in the market and enable more consumers to benefit when wholesale prices fall. We’ll monitor how effective this is before considering whether it should become an enduring measure in the market.”

Secondly, suppliers will now be required to pay a Market Stabilisation Charge to the losing supplier when it acquires new customers. This will only be triggered if wholesale prices fall considerably below the level assumed in the price cap, which is set to be £1,971 a year for the summer period.

“Alongside tougher financial regulation, this will make sure that energy companies do not take disproportionate financial risks and suppliers who have done the right thing by purchasing energy in advance for their customers aren’t penalised, whilst protecting the ability of switching consumers to benefit from cheaper tariffs when prices fall,” added the spokesperson.

The measures follow the Statutory Consultation on short-term interventions launched by the regulator at the end of 2021.

As wholesale power prices surged in 2021 due to the global gas prices, suppliers were caught between the cost of energy and the price cap. This squeeze led to 27 suppliers collapsing and their customers being placed with a Supplier of Last Resort (SoLR), as well as Bulb entering into special administration.

One criticism raised against some of the suppliers has been that they offered below market rate tariffs in an effort to build up their consumer base. This – along with being less hedged – left them very vulnerable to fluctuations in wholesale power prices. Ofgem’s new measures will help to manage these financial risks going forwards.

The measures were welcomed by Simon Oscroft, co-founder of green energy supplier So Energy, who said the move to make all tariffs available to existing customers will ensure loyal customers are not excluded from the best deals and “will encourage more sustainable pricing and in turn improve supplier resilience by preventing suppliers from offering loss leading exclusive tariffs to new customers".

“This measure will make life better for all customers, so rather than have a time limit we call on Ofgem to implement this measure permanently - which they have committed to consider at the end of the 6-month period. This will help build a more resilient and fairer energy market as we begin to emerge from this crisis.”

The turnover in the energy supplier market has led to considerable turmoil, with over four million consumers seeing their supplier close or enter special measures. Additionally, this has further added to the growing cost of energy, with research from Cornwall Insight this week suggesting the sheer quantity of suppliers entering the SoLR has added £34.36 to domestic electricity bills for 2022-23.


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