Ofgem to consider 'dynamic' price cap based on time of day you use energy

Options also include introducing a targeted price cap, which could be based on a variety of factors such as vulnerability.

The regulator is also considering more flexible, market-based price protections, such as setting a limit between a supplier's default tariff and tariffs available on the market, capping the margin suppliers are able to make, or replacing the cap with a ban on acquisition-only tariffs.

The regulator said the price cap and the temporary ban on acquisition-only tariffs had worked well to protect customers from the "loyalty penalty" - where customers on default tariffs paid higher prices - and from the worst of the recent volatile markets and wholesale price surges.

Ofgem also said energy retail markets were changing as more and more consumers changed their energy consumption, including using electric vehicles, heat pumps and solar panels.

The increasingly renewables-dominated electricity sector will reward customers for moving the time of their electricity consumption, which will subsequently reduce costs for everyone, Ofgem said.

The introduction of half-hourly settlement from 2025 will give customers more flexibility in how they use and pay for electricity, and is expected to lead to an increase in smarter time of use tariffs, rewarding customers for being more flexible in their energy usage, Ofgem said.

It means consumers will be able to benefit from cheaper energy when renewable generation rises - such as when it is very windy or sunny.

Ofgem’s director general of retail and markets, Tim Jarvis, said: “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.”

Many energy suppliers have begun offering rewards for customers who switch their energy consumption outside of certain peak hours in recent years.

The National Grid ESO's Demand Flexibility Service (DFS), introduced in winter 2022/23, allows the ESO to manage supply through periods when margins are tight, while households and businesses could get rewards for reducing their electricity consumption during that time.

More than 1.6 million households and businesses participated last winter.

Households with a smart meter, or a business site with half-hourly metering, could sign up either via their retail energy supplier or through online providers/apps who are participating in the service.

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The full list of domestic household suppliers registered as DFS partipicants are:

• Axle Energy Ltd
• British Gas
• CarbonLaces Solutions Ltd
• Chameleon Technology (as Ivie)
• Easee UK Ltd (via Axle Energy Ltd)
• Ecotricity Group Limited via (SMS – Solo Energy Ltd)
• EDF
• E.ON Next Energy Ltd
• Equiwatt
• Foxglove Energy Supply Ltd T/A Outfox the Market (via SMS – Solo Energy Ltd)
• GivEnergy (via Axle Energy Ltd)
• 100 Green (via SMS – Solo Energy Ltd)
• Good Energy (via SMS – Solo Energy Ltd)
• Hildebrand Technology Ltd
• Hugo Energy App (via SMS - Solo Energy Ltd)
• Levelise LimitedLoop (via SMS - Solo Energy Ltd)
• Octopus Energy
• MakeMyHouseGreen (via SMS – Solo Energy Ltd)
• Ohme (via Axle Energy Ltd)
• OVO Energy.
• Passiv UK (via SMS – Solo Energy Ltd)
• Perse Technology Ltd
• Power Rewards App (via Orange Power Ltd)
• Rebel Energy Supply Limited (via SMS – Solo Energy Ltd)
• Scottish Power (via Equiwatt)
• So Energy (via SMS – Solo Energy Ltd)
• SMS (Solo Energy Ltd)
• SolarEdge Technologies (via SMS – Solo Energy Ltd)
• Uswitch Ltd (via Hildebrand)
• Utilita Energy Ltd