Ofgem to consult with suppliers on potential changes to energy price cap

energy bills
(Image credit: Getty)

Energy regulator Ofgem is set to conduct a consultation with energy suppliers about how the energy price cap is calculated.

The announcement follows the news that 13 energy suppliers in the UK have gone out of business since the start of September. These now-defunct suppliers were ultimately beaten by rising wholesale costs that they were unable to pass onto customers, due to restrictions created by the current price cap.

At present, it’s estimated that the difference between wholesale prices and what suppliers can charge is around £400 per customer per year. This means that all suppliers are currently selling gas and electricity to their customers at a loss.

Energy suppliers to be consulted on possible changes

As a direct result of the pressure that energy suppliers are facing, Ofgem has said that it will consult with suppliers on how the price cap should be calculated and whether it currently reflects the costs, risks and uncertainties facing supplies.

In a letter to suppliers, it also said that it will also look at “an enhanced approach to monitoring, compliance and enforcement of licence conditions” to make sure energy suppliers “pursue a sustainable business model”.

The consultation process is set to begin this month and a decision on any potential changes to the price cap will be published in February 2022. This means any changes can be implemented before the new price cap comes into effect in April 2022.

How have suppliers reacted?

Since Ofgem wrote to suppliers, many of them have come out in praise of the idea of reworking the way that the price cap functions. However, not all suppliers are in agreement that the changes are positive.

Michael Lewis, chief executive at E.ON, said Ofgem's move is a “welcome step”, adding: “We've got to take a cold, hard look at the energy market to understand what went wrong and to make sure we can stop this happening again.”

However, although his view was backed by other energy suppliers such as British Gas, some other suppliers have disagreed with the announcement. 

Dale Vince, founder of Ecotricity, said: “I don't see the point of this consultation, because no amount of fiddling with the way the price cap is calculated can address the fundamental problem - we're in a situation where wholesale prices change daily and retail prices change twice a year - there will always be a disconnect.

“We need to either price control both or price control neither.”

What does this mean for customers?

Although the consultation may mean that the price cap will rise again in April 2022, the good news for customers is that the current price cap will remain in place until this date. This means that even if wholesale gas prices continue to rise over winter, you’ll still have some level of protection.  

At present, you cannot use an energy comparison service to switch tariffs. That’s because even the best energy deals available from the UK’s best energy suppliers cannot beat the current price cap. As a result, the best thing for you to do is stay with your current supplier and receive protection from rising prices via the energy price cap, which currently stands at £1,277 per household.

Tom Brook

Tom is a freelance copywriter and content marketer with over a decade of experience. Originally from an agency background, he is proud to have worked on campaigns for a number of energy providers, comparison sites and consumer brands.