In a move to encourage flexible energy consumption, Ofgem is exploring the introduction of a dynamic price cap and other innovative pricing strategies to adapt to the growing renewable energy market.
Ofgem, the UK’s energy regulator, is considering the introduction of a “dynamic” price cap, which would vary energy prices based on the time of day energy is used. This move targets to encourage consumers to shift their energy usage to times of lower demand, aligning with the growing influence of renewable energy sources and smart technologies in the energy market. With plans to implement half-hourly settlement by 2025 through smart meters, Ofgem aims to promote the use of time-of-use tariffs, motivating flexible energy consumption.
In addition to exploring time-based pricing, Ofgem is also looking into alternative price protection strategies, including targeted caps based on vulnerability and market-based measures to ensure fairness. As renewable energy becomes more prevalent, with its output dependent on weather conditions, the current energy price cap system may require adjustments. The quarterly price cap is set to decrease from £1,928 to £1,690 for the next quarter, indicating a dynamic approach towards pricing to reflect the changing energy market conditions.
Tim Jarvis, Ofgem’s Director General of Retail and Markets, stressed the importance of evolving regulatory mechanisms to benefit consumers amidst the transition to net zero emissions. The goal is to develop regulatory measures that cater to changing consumer energy usage patterns while safeguarding interests and promoting efficiency in the energy market.
The regulator is launching a consultation on the future of price controls, including the potential introduction of dynamic pricing and other alternative measures. Ofgem acknowledges the need to adapt to the evolving energy retail landscape, as more consumers adopt electric vehicles, heat pumps, and solar panels. By consulting with stakeholders, Ofgem aims to shape pricing regulations that ensure fair and efficient market operations for all consumers in Great Britain.