Great Britain’s energy regulator could update the energy price cap as often as every three months as it braces for further volatility across global markets.
Jonathan Brearley, Ofgem’s chief executive, said it would be better to have the option to update the price cap more frequently to allow households to “adjust much more quickly” to some of the changes in the market. Currently, the price cap is reviewed every six months.
Ofgem raised the cap on average household energy bills by 54% to £1,971 on Thursday, the biggest increase since it introduced the cap in 2019. The increase will take effect from April, following the last increase six months before in October.
Soaring household energy bills reflect an extraordinary period on wholesale gas markets, with the cost paid by suppliers quadrupling in the space of a few months amid increased demand during the recovery from the coronavirus pandemic. The oil and gas producer Shell on Thursday announced its highest quarterly profit in eight years.
The increase will hit household budgets at a time when overall consumer price index inflation has risen to a 30-year high, with prices reflecting shortages caused by the coronavirus pandemic.
“What we’re now saying is that we need to look to the future, and the difficult news for all of us is that this volatile market might be with us for some time,” Brearley told BBC Radio 4’s Today programme. “To do that we’ve got to change our entire regulatory package to make sure the market can better adapt.”
He acknowledged that more frequent updates would have meant prices rose more quickly this winter but said equally that customers would see the benefits of price drops more quickly as well.
An Ofgem spokesperson said the regulator was consulting on the changes, which would only come in after October if agreed. Ofgem also confirmed it will have the ability to make further ad hoc changes to the cap in between the regular reviews in “exceptional circumstances” if five tests are met “in the interests of stabilising the market and making sure consumers and suppliers pay a fair price”.
The move would likely help suppliers by allowing them to raise prices more quickly, after the collapse of 29 energy companies, most of whom had not protected themselves sufficiently against wholesale cost increases. The regulator and the government have faced criticism for not introducing measures to prevent the crisis.
About 10% of the rise in bills – about £68 a household – went towards paying for the costs of emergency measures to continue providing gas to customers whose supplier collapsed.
Brearley said suppliers “need to be much more financially resilient” but claimed the best way to avoid a repeat of this winter’s crisis would be to push faster towards increased energy efficiency, renewable energy and nuclear energy.
“Looking into the long term, the real way for the country to get out of the volatility we’ve seen is to diversify our energy sources and push harder on getting towards our net zero target,” Brearley said.
