Energy costs could vary according to time of day...

A consultation on how to develop a more dynamic energy price cap has been launched by the regulator, Ofgem.

The regulator claims the current price cap system has worked well to protect customers from higher ‘default’ prices and the worst of the recent volatile markets and wholesale price surges.

But it claims energy retail markets are changing as increasing numbers of consumers change their energy consumption and begin using electric vehicles, heat pumps, and solar panels.

As this customer diversity grows, and more households adopt time-of-use tariffs, it could become harder to retain a universal price cap that is suitable for everyone, claims Ofgem.

So it is considering how the price cap, and energy regulation as a whole needs to adjust to ensure customers are protected, they continue to pay a fair price for their energy, and they get to realise all the benefits of net zero.

To inform that work, it has published a discussion paper on the future of price protection. It complements a Government Call for Evidence (CFE) on default tariffs published last month.

The introduction of half hourly settlement from 2025 means customers will have more flexibility in how they use and pay for electricity, and is expected to lead to a growth in smarter time of use tariffs that reward customers for being more flexible in their energy usage. This will allow consumers to have cheaper energy when renewable generation increases such as when it is particularly windy or sunny.

Ofgem is suggesting a range of options including introducing a more dynamic cap with time-of-use rates to encourage consumer flexibility, and even a targeted cap which could be based on a variety of factors such as consumer vulnerability.

A further option is introducing more flexible, market based price protections such as setting a limit between a supplier’s default tariff and tariffs available in the market, capping the margin suppliers are able to make, or replacing the cap with a ban on acquisition only tariffs.

Tim Jarvis, Ofgem’s director general, says: “While the price cap played an important role in protecting consumers from the loyalty penalty that existed before its introduction, the energy market is changing as we move to net zero, and we recognise the systems we have in place may need to change too.

“We’re looking in detail at the elements of the price cap that have worked well and the challenges we’ve identified in recent years, while also considering how a wide range of future consumers will use and pay for energy, to make sure we develop the right measures that will protect and benefit consumers across the board.

“We will continue to work with government, industry, consumer groups, charities and the public on the future of pricing regulation. Our aim is ensure the market works for everyone.”

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Dominic Tighe
27 March 2024 07:34 AM

I agree Jo. I’ve just been doing some in-depth research for use in some of my FHL’s. The economic benefits of Air and Ground Source isn’t there yet but Solar and battery storage really is. On the project I’m looking at I can see a 5 year pay back on solar panels and 3 year pay back on battery storage. That’s a 20% and 33% return on investment! I haven’t got any other investments as good as that.

Tricia Urquhart
27 March 2024 07:39 AM

This is great for people wealthy enough to install solar & batteries but for those who just rely on the grid this will either force them to pay more or cook / wash / shower at unusual times! Big Brother is controlling how you live!

Jo Westlake
27 March 2024 08:54 AM

Tricia - it could be argued that only the wealthy can use what they WANT now. Most people have seen eye watering increases in their utility bills and have tried to cut back.
If it's half price to do your laundry outside the peak times surely that's a good thing. Very few people NEED to run their dishwasher, washing machine or tumble drier between 16:00 and 19:00, which seems to be the peak time the utility companies are most concerned about.
Obviously people want to cook at peak times but most days it's something quick in the air fryer or on the hob or has been previously batch cooked and just needs reheating or has been sat in a slow cooker all day. How many people regularly do a full blown multi appliance dinner when they get home from work?

Jo Westlake
27 March 2024 09:19 AM

Be careful what you wish for on that one. I still remember when there was a choice of lower standing charge, higher unit price or higher standing charge, lower unit price. You had to be a very low user to be better off with the lower standing charge option.

I agree the Standing Charge is unfair. It's especially unfair that a chunk of it is to cover the energy used by people who don't pay their bills. Quite why it's considered acceptable to charge everyone else more because utility companies can't manage customer debt effectively is beyond me. I already pay staggering amounts of tax so people who can't be bothered to work get UC and Cost of Living handouts which are supposed to pay for utility bills. I fail to see how it is justifiable to charge me sky high Standing Charges because they have chosen to spend their tax payer funded handouts on tattoos, alcohol, false nails, hair extensions, cigarettes, etc.

Surely the best option would be for far more pre payment meters to be fitted so the utility companies get their money upfront and don't have so much customer debt. Especially now the prepayment tariffs are cheaper than standard billing. One of my UC tenants has a prepayment meter and he keeps his flat at tropical. His app tells him when he needs to top up the meter. No big bills to derail things later. I guess it also makes it easier to get his adult children to pay for some of the top ups.

Jo Westlake
27 March 2024 09:28 AM

Is it the smart meter or the In House Display unit that doesn't work?
I'm not a fan of smart meters in general but do have them in 4 houses. I think the IHD works in one house. The others either won't work at all or don't acknowledge the solar tariff we're on. The billing is fine on all of them at the moment.