Ofgem plans energy price cap shake-up

The price cap on household energy bills could be reviewed every three months under new plans mooted by Ofgem yesterday.

The energy regulator said that it might insert two new reviews a year, one in January and another in July.

It would help pass on savings from a potential fall in gas prices to customers more rapidly, Ofgem said, and also protect under-pressure energy suppliers from being damaged by the cap.

The regulator is also consulting on plans that could add between £40 and £80 to customers’ bills from this October.

Around 23 million households in Great Britain have their energy prices decided by the energy price cap, so any change will have a huge impact on wallets across the country.

“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,” said Ofgem chief executive Jonathan Brearley.

“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 pushes 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.”

After a consultation, Ofgem hopes that the changes could come into force from October, meaning the first change under the new system would be made in January.

The energy price cap – currently at a record £1,971 per year for the average household – is reviewed every six months and changed in October and April.

Ofgem considers a range of information when deciding where the price cap should be set. The price that energy suppliers pay for the gas and electricity they buy is a major part of this.

Over the last year gas prices have risen so rapidly that suppliers were often forced to sell the gas for less than they bought it for due to the price cap.

By changing the price cap more often, Ofgem will make it more reflective of international gas prices, taking some pressure off suppliers. The proposed changes to the cap will also allow suppliers to recover some other costs in a better timescale.

Ofgem’s suggested quarterly energy bill price cap review would be a small change with potential to make an enormous difference to households, both for better and for worse. Given the strain so many are currently under, the existing six months between price changes would likely feel like a lifetime for some families. However, there is no guarantee that costs will fall, and the proposed system could result in bills going up twice this winter. If the plan goes ahead, help for those in need will be more important than ever.