Ofgem Considers Forcing Energy Suppliers to Pay Rivals Over Cheap Deals
Ofgem has launched a consultation on reintroducing the market stabilisation charge, which would require energy suppliers to compensate rivals when they attract customers with cheaper deals, as the regulator seeks to prevent supplier failures amid volatile wholesale prices linked to Middle East conflict.
Energy suppliers in Great Britain could be required to pay a charge to their rivals when they win customers with cheaper deals, under proposals published by Ofgem. The industry regulator has opened a consultation on reintroducing the market stabilisation charge (MSC), a mechanism designed to prevent suppliers from collapsing when they face a sudden exodus of customers.
The MSC was first introduced after Russia's invasion of Ukraine, when soaring wholesale gas prices triggered a wave of supplier failures across the British energy market. Ofgem is now considering reactivating the charge as it monitors sharp swings in energy prices linked to the conflict in the Middle East.
Under the proposal, a supplier that lures customers away from a competitor with a cheaper tariff would be obliged to pay a levy to the rival firm. The aim is to stabilise the market by discouraging aggressive price competition that could leave suppliers exposed if wholesale costs rise unexpectedly. The charge effectively acts as a cushion, transferring some of the risk from the receiving supplier to the one gaining market share.
The regulator's concern is that a rapid loss of customers can push a supplier into administration, particularly if it has already purchased energy in advance at higher prices. When a supplier goes bust, the costs of transferring its customers to another provider are ultimately borne by households through a levy added to bills. Ofgem's intervention is therefore intended to protect consumers from picking up the tab for further market failures.
The consultation comes amid heightened volatility in global energy markets. The conflict in the Middle East has added uncertainty to oil and gas prices, raising the prospect of further shocks for British suppliers and their customers. Ofgem has previously warned that the energy market remains fragile, with many suppliers operating on thin margins and limited financial reserves.
The market stabilisation charge was a controversial measure when first implemented. Some suppliers argued it penalised successful businesses that offered competitive deals, while others said it was necessary to prevent a repeat of the 2021 crisis, when more than 20 energy companies collapsed. The charge was eventually phased out as wholesale prices stabilised, but Ofgem has retained the option to reintroduce it if conditions deteriorate.
Industry analysts suggest the proposal could have significant implications for competition in the retail energy market. If the charge is set too high, it may discourage suppliers from offering cheaper tariffs, reducing the incentive for customers to switch and potentially leading to higher bills. If set too low, it may fail to prevent supplier failures. Ofgem will need to strike a balance between market stability and consumer choice.
The consultation is expected to gather views from energy suppliers, consumer groups and other stakeholders before a final decision is made. Ofgem has not indicated a timeline for implementation, but the regulator has signalled that it wants to act before the winter, when demand for energy peaks and suppliers are most vulnerable to price shocks.
Consumer groups have broadly welcomed the move to protect the market from further disruption, though some have questioned whether the charge could ultimately lead to higher prices if suppliers pass on the costs. The regulator has stressed that the measure is designed to be temporary and targeted, and that it will continue to monitor the market closely.
For households, the immediate impact of the consultation is likely to be limited, but the outcome could shape the energy market for years to come. With wholesale prices still subject to geopolitical shocks, Ofgem's decision on the market stabilisation charge will be closely watched by suppliers, investors and consumers alike.
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