A consultation on Ofgem’s price cap is much needed and should highlight that the system is partially to blame for a lack of competition among suppliers, industry insiders have said.
Regulator Ofgem announced a consultation on the price cap, which determines how much suppliers can charge per unit of energy, on Monday.
This could pave the way for a dynamic system to be introduced, whereby energy prices vary based on the time of day or on factors such as vulnerability, Ofgem said.
The consultation comes after a jump in energy prices on the back of the Ukraine war has left suppliers largely using the cap as a guide price, rather than the absolute limit originally intended.
Indeed, “almost three years on from the start of the energy crisis, we’re yet to see a full return to competition in the market,” Uswitch director Richard Neudegg commented.
“The price cap must bear some of the blame,” he said. “We support Ofgem’s view that the price cap needs reform, given it has proved to have significant limitations.”
Ofgem’s cap is set to see households charged £1,690 on an annualised basis from April to July, down from £1,928 currently, after wholesale costs have fallen.
That said, wholesale gas prices had returned to mid-2021 levels as early as May last year, though household bills continued to remain elevated compared to before the crisis.
“The devil will be in the detail,” Nuedegg continued.
“It is vital that any changes made to the cap create conditions to bring back better deals for consumers, and also offers targeted protections to the most vulnerable.”