The energy regulator for Great Britain is consulting on reinstating the market stabilisation charge (MSC), a mechanism designed to prevent supplier failures amid concerns about market instability during the coming winter months. The proposal comes as wholesale energy prices remain volatile due to ongoing geopolitical tensions in the Middle East, prompting officials to take precautionary measures.
Under the proposed mechanism, the MSC would activate if wholesale prices decline by more than 10%. When triggered, suppliers who attract customers through discounted fixed-rate deals would be required to compensate rival companies for 85% of the wholesale price reduction. The charge addresses a problem that occurs when suppliers who have pre-purchased energy at higher rates face losses as customers switch to competitors offering lower rates reflecting current market conditions.
Ofgem last implemented this charge between April 2022 and March 2024, following Russia’s invasion of Ukraine, which caused wholesale prices to spike dramatically and led to the failure of over 30 energy companies. The regulator framed the potential reintroduction as necessary to protect market stability, with officials stating that the mechanism would enable suppliers to secure energy supplies without taking excessive financial risks.
However, the proposal has drawn criticism from consumer advocates. Martin Lewis, founder of the consumer advice site MoneySavingExpert, characterized the mechanism as a “switching penalty” that would ultimately harm consumers by making discounted deals less attractive and less substantial. He questioned whether the measure was necessary, noting that energy suppliers have reported strong profits since the last activation and that the market appears comparatively stable.
Ofgem emphasized that reactivating the charge would not automatically increase household bills and that the consultation seeks input on various operational aspects including activation thresholds and deactivation procedures. The move occurs as households face their highest energy costs in three years this winter, with government officials separately planning interventions to assist lower-income households through the budget process.
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