Ofgem unveils shake-up plan to change price cap every three months

The regulator’s proposals aim to enable greater agility – allowing bills to fall more quickly

Big Zero Report 2022

As energy prices rise, the price cap could soon be adjusted quarterly.

Ofgem has today published a ‘minded-to’ consultation to look at whether the energy price cap should be updated quarterly rather than every six months.

The regulator said a more frequent price would reflect the most up-to-date energy price so customers would see benefits sooner.

On 1st April, 22 million customers saw the level of energy price cap increase by 54%. 

The measure is also predicted to halt further supplier failures as it would allow energy companies to forecast how much energy they need to purchase to cover their customers’ demands.

In February, speaking during a Business, Energy and Industrial Strategy Committee’s session looking at energy prices and the impact the price has on household bills, Jonathan Brearley, Ofgem Chief Executive Officer hinted at more frequent changes in the level of the price cap.

Ofgem proposes:

  • Price cap review every three months instead of every six months.
  • A small reduction in the amount of notice suppliers get of the new price cap level.
  • Updating the wholesale allowance to ensure that suppliers can recover backwardation costs in a reasonable period of time. Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market.

Mr Brearley said: “Today’s proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.

“It would also help energy suppliers better predict how much energy they need to purchase for their customers, reducing the risk of further supplier failures, which ultimately pushed up costs for consumers.

“The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions.”

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