Ofgem has launched a consultation on reinstating the market stabilization charge (MSC), a regulatory mechanism designed to prevent energy suppliers from failing during periods of volatile wholesale prices. The proposal comes as the regulator monitors potential market instability linked to geopolitical tensions in the Middle East affecting energy costs across Great Britain.
Under the proposed mechanism, the MSC would be triggered if wholesale prices decline by more than 10%. When activated, suppliers that attract customers by offering cheaper fixed deals would be required to compensate competing suppliers with 85% of the wholesale price reduction. Ofgem argues this protects suppliers that have purchased energy in advance for customers on default tariffs from sustaining losses when large numbers of customers switch to lower-cost offerings.
The MSC was previously in effect between April 2022 and March 2024, during the period following Russia’s invasion of Ukraine when wholesale price spikes led to the failure of more than 30 energy companies. Ofgem officials stated the mechanism helps maintain market stability during volatile conditions and prevents suppliers from taking excessive risks when securing energy for their customer base.
The proposal has drawn criticism from Martin Lewis, founder of consumer advice site MoneySavingExpert, who argues the mechanism functions as a “switching penalty” that discourages competition and prevents consumers from receiving full benefits of falling wholesale prices. Lewis questioned whether reintroduction is necessary given the current stability of the supplier market and recent profitability of major energy firms.
Ofgem’s consultation seeks feedback on operational parameters including trigger levels, notice periods, and deactivation procedures. The regulator emphasized that reactivating the MSC would not automatically increase customer bills. The timing coincides with household energy costs reaching their highest levels in three years, with typical annual bills at £1,723 for the October-December period.
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