Britain’s energy regulator Ofgem has launched a consultation on reinstating the market stabilisation charge, a mechanism designed to protect suppliers from financial failure during periods of significant price volatility in the wholesale energy market.
The charge would be activated if wholesale prices decline by more than 10%. Under the proposal, suppliers who gain customers by offering cheaper fixed-rate deals would be required to compensate their competitors, paying 85% of the wholesale price reduction to rival firms. Ofgem stated the mechanism addresses a specific risk: when suppliers have already purchased energy in advance for customers on default tariffs, sharp price drops can create losses if large numbers of customers switch to lower-cost fixed deals offered by competitors.
The market stabilisation charge was previously active between April 2022 and March 2024, a period when Russia’s invasion of Ukraine triggered substantial increases in wholesale prices that led to the failure of more than 30 energy companies. Ofgem cited ongoing volatility linked to Middle East tensions and the need to prepare for what it described as a challenging winter ahead.
The proposal has drawn criticism from consumer advocates. Martin Lewis, founder of MoneySavingExpert, characterized the mechanism as a “switching penalty” that would ultimately harm consumers by discouraging competition and preventing suppliers from passing savings along to customers. Lewis questioned whether the reintroduction was necessary, noting that energy companies have achieved substantial profits since the charge was last deactivated and that the market currently appears stable.
Ofgem emphasized that reactivating the charge would not automatically increase customer bills, and the consultation seeks input on operational details including trigger levels, notice periods, and deactivation arrangements. The consultation occurs as households face higher energy bills this winter, with the government price cap equivalent to £1,723 annually for typical usage between October and December.
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