Ofgem proposes market stabilisation charge so suppliers pay rivals for cheap-deal switchers
Ofgem has opened a consultation on reintroducing the market stabilisation charge, under which energy suppliers winning customers with cheaper deals would pay a charge to rivals, as the regulator prepares for a winter of volatile wholesale prices linked to the Middle East conflict.
Ofgem proposes market stabilisation charge so suppliers pay rivals for cheap-deal switchers
The energy regulator Ofgem has published a consultation on a proposal to reintroduce the market stabilisation charge (MSC), a mechanism under which suppliers poaching customers with cheaper deals could pay a charge to rivals. The move comes as the watchdog frets over the impact of sharp swings in energy prices linked to the conflict in the Middle East.
How the charge would work
The charge would come into force if wholesale rates dropped by more than 10%. At that point, a supplier attracting switchers with low-priced tariffs would owe rival firms a payment covering 85% of that fall in wholesale costs.
Ofgem's stated reasoning is that a supplier which hedged, buying energy ahead of time for households on default tariffs, can be left out of pocket if wholesale rates tumble while large numbers of those households move to cheaper fixed deals.
The consultation seeks views on how the mechanism should operate, including:
- trigger levels
- notice periods
- deactivation arrangements
Why now
Neil Kenward, Ofgem's interim director general of markets, said the regulator is preparing for what is likely to be a difficult winter for many households.
"In volatile market conditions, it's important that suppliers can continue to secure the energy their customers need without taking unsustainable risks."
Kenward said that while the energy market is stronger than it was during the energy crisis, volatility remains, and that the MSC supports responsible energy purchasing and helps reduce the risk of instability in the market.
The charge was last activated between April 2022 and March 2024, when Russia's invasion of Ukraine drove soaring wholesale prices and more than 30 energy companies went bust.
Martin Lewis's objection
Martin Lewis, founder of MoneySavingExpert, has criticised the plan. When the MSC was last activated in 2022, he swore at the regulator on a press call and said the mechanism sold consumers "down the river" by deterring competition, before later apologising on X for his "emotional rant".
Reacting to the consultation, Lewis said the mechanism acts as a "switching penalty": consumers will not get as good deals if wholesale prices drop.
"The cheap fixes and switcher deals offered will be a lot more expensive, in order to protect energy firms' profits.
His argument is that a new supplier cannot pass on much of the saving from lower wholesale rates because it must hand much of it to the customer's old supplier. He also questioned the need to reintroduce the mechanism at all, noting many energy companies have made significant profits since the last activation.
"The supplier market is pretty stable, and I doubt we are at the domino risk of suppliers going bust"
What Ofgem says about bills
Ofgem said reactivating the MSC would not "automatically create charges or increase customer bills".
The consultation lands against a price-cap backdrop: households face the highest energy charges in three years this winter after rising wholesale prices pushed up the government price cap from this month. From October to December, around 22 million homes will pay at an annual rate of £1,723 for typical gas and electricity use, compared with £1,663 across July to September.
