Ofgem plans to extend price cap monitoring period

The move aims to support suppliers trading in an extremely volatile market

Ofgem has today said it could extend the price cap monitoring period to better reflect the market costs for energy suppliers. 

In recent months, skyrocketing energy prices have forced many suppliers to exit the market.

A few days ago, Energy UK sent a letter to the Chancellor calling for more support for businesses.

Emma Pinchbeck, the trade association’s Chief Executive, wrote: “Volatility in the international gas market in 2021 has already seen wholesale gas price spikes of up to 500%, 29 UK retail energy suppliers exit the market and an energy bill rise this April which we estimate will put an additional one million UK households into fuel poverty.”

The energy regulator’s objective is to make the price cap methodology more resilient to volatile wholesale markets.

It is believed it could reduce the financial risk to suppliers and costs to customers.

Ofgem plans to use forward market prices from closer to the point of delivery to calculate the cap level.

The regulator said: “The price observation window would be from 1st March to 31st August for the winter period, one month later than the current observation window.”

It added: “We are aware that changes to the cap observation window could affect the wholesale market liquidity, so rather than stopping price observations for a period, we will reduce the weighting of prices to transition more slowly towards the target observation window.

“Further changes to the cap methodology may push the target observation window even later, so it prudent to make a change to guidance as soon as possible, to avoid the need for deeper reductions later in the period.”

Last month, speaking during a Business, Energy and Industrial Strategy Committee’s session looking at energy prices and the impact the price has on household bills, Ofgem Chief Jonathan Brearley said: “What I think we need to do at a minimum is make sure we update it (price cap) more frequently.”

The price cap will rise from the current level of £1,277 to £1,971 from 1st April. 

Prepayment customers will see an increase of £708 from £1,309 to £2,017.

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