Ofgem should not be used to effectively renationalise the energy market

As if electricity pricing were not complicated enough, the regulator Ofgem has proposed varying the cap depending on the time of day. Since the system was introduced, prices have been capped per unit on a universal basis covering some 29 million households on standard tariffs. It is estimated that the annual energy bill for a household using a “typical” amount of energy will fall to £1,690 from April – the lowest for two years. Even so, bills remain 49 per cent higher than pre-2021 levels.

Ofgem says the current scheme is not suitable for all households, many of which use cheaper electricity at night when demand is lower. It has now launched discussions about introducing a “dynamic” price cap to reflect this.

Many people have changed the way they consume energy, for instance by using electric vehicles, heat pumps and solar panels. These can be charged up overnight at cheaper rates. But as EVs, in particular, become more popular, and petrol cars are phased out to meet zero carbon targets, night-time demand will grow, raising the price.

Ofgem also proposed a number of other possible interventions, including limits on a supplier’s default tariff if cheaper electricity is available in the market or a ceiling on profit margins of suppliers.

What is apparent is that Ofgem is becoming enmeshed in areas it was never intended to go. It is supposed to act as a defender of consumer interests not a determinant of how the market works. Yet it failed to prevent the collapse of two dozen energy companies and has presided over the return of the Big Six with little competition or innovation. Partly this was due to events over which Ofgem had no control, but it should not be used effectively to renationalise the market.