Britain's energy regulator has launched a consultation on proposals to reinstate a measure designed to shield suppliers from significant fluctuations in gas and electricity prices, as the conflict in Iran continues to rattle wholesale markets.
Ofgem announced it was considering reactivating its market stabilisation charge, a mechanism intended to prevent energy suppliers from going under when wholesale energy prices drop sharply amid turbulent market conditions.
How the mechanism works
Suppliers can find themselves exposed when they have purchased energy in advance at elevated prices, only to face financial losses if costs subsequently plummet and large numbers of customers defect to rival firms in pursuit of better deals.
The mechanism works by ensuring that any supplier gaining a customer through switching pays a charge to partially compensate the provider that lost that customer.
Background and impact on bills
The measure was originally introduced in April 2022 through to March 2024 in the wake of Russia's invasion of Ukraine, which sent shockwaves through energy markets.
Ofgem stressed that reactivating the charge would not automatically generate costs or drive up customer bills, emphasising that payments between suppliers would only be triggered if wholesale prices fell sharply enough.
Households were already dealt a blow with a 4% increase to Ofgem's energy price cap from 1st October, with analysts cautioning that power bills could surge by nearly another £300 from January.
Regulator's response
Neil Kenward, interim director general of markets, said: "We're preparing for what is likely to be a difficult winter for many households.
"While the energy market is stronger than it was during the energy crisis, volatility remains and the market stabilisation charge helps to protect consumers from that volatility."
He added: "In volatile market conditions, it's important that suppliers can continue to secure the energy their customers need without taking unsustainable risks.
"By acting now, we can help maintain a stable and resilient energy market and protect consumers from the costs and disruption that can arise when markets become unstable."
