Watchdogs are set to investigate a new energy price cap regime that would allow firms to charge different tariffs depending on the time of day.
The move threatens to be highly controversial because it could give firms the freedom to hike tariffs at peak periods to push householders to switch their energy use to other times.
The net effect is householders could be charged more to use the kettle or washing machine during the early evening peak.
The system could also reward householders with lower tariffs if they chose to switch energy-intensive activities, such as using the washing machine and dishwasher, and charging electric cars at night.
A consultation has been announced by the energy regulator, Ofgem, which said it is considering the change to promote “consumer flexibility”.
The energy retail markets are changing as increasing numbers of consumers change their energy consumption and begin using electric vehicles, heat pumps, and solar panels.
Tim Jarvis, Ofgem’s director general of retail and markets, 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 to ensure the market works for everyone.”
Ofgem is considering other options to adapt the price caps including a targeted cap which could be based on a variety of factors such as vulnerability, and more flexible, market-based price protections.
For instance; setting a limit between a supplier’s default tariff and tariffs available in the market, capping the margin suppliers are able to make, or replacing the cap with a ban on acquisition-only tariffs.
Ofgem said the price cap, along with 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 that were a result of the energy crisis.
