Ofgem could update price cap more frequently due to volatile energy prices
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Ofgem has proposed more frequent updates to the energy price cap in future in order to more accurately reflect the changing costs of gas and electricity.
The price cap is currently updated twice a year and tracks wholesale energy and other costs. It was last updated in August, so the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
This saw the collapse of numerous consumer energy providers as they could not afford to continue to purchase energy at wholesale cost while charging customers less than they bought it for.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Ofgem has now opened a consultation on a proposal to switch from half-yearly to quarterly price cap updates and reducing the advance notice for new tariffs to take effect.
“We are consulting on a number of changes to the price cap methodology in response to the recent unprecedented rise in wholesale market prices and volatility,” it said.
In September, the government promised to maintain the energy price cap as prices surged in order to protect “the elderly and vulnerable”.
It was announced today that the government will increase the cap from 1 April for approximately 22 million customers.
Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year while prepayment customers will see an increase of £708 from £1,309 to £2,017.
Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy, which will help protect customers from similar price shocks in the future.”
Ofgem will soon announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers.
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