Ofgem Proposes Market Stabilisation Charge to Prevent Supplier Collapse
Ofgem is consulting on a charge to prevent energy supplier failures by requiring firms to compensate rivals when customers switch to cheaper deals.
The energy regulator Ofgem has launched a consultation to reintroduce the market stabilisation charge (MSC) to prevent energy suppliers from collapsing during the upcoming winter. The mechanism would trigger if wholesale energy prices drop by more than 10%, forcing suppliers that attract new customers with cheaper deals to compensate rivals for 85% of that price drop.
Ofgem intends the charge to mitigate risks from price volatility linked to Middle East conflicts and avoid a repeat of the 2022 crisis, which saw over 30 companies fail. Neil Kenward, interim director general of markets at Ofgem, defended the MSC as a tool to maintain a resilient market and protect consumers from the disruption caused by instability.
Martin Lewis, founder of MoneySavingExpert, criticized the proposal as a switching penalty that deters competition and prevents consumers from accessing lower rates. He argued the move effectively protects energy firm profits over winter by dampening competition. These developments come as households face the highest energy charges in three years, with average annual bills for October to December reaching £1,723.
