Ofgem consults on bringing back the market stabilisation charge before a difficult winter
The energy regulator has launched a consultation on activating the market stabilisation charge, a payment between suppliers designed to protect the market when wholesale prices fall sharply, with responses due by 29 October.
The energy regulator, Ofgem, launched a consultation on Friday on activating its market stabilisation charge, to protect energy suppliers from wholesale price swings and continued market volatility during a possibly tough winter. The consultation, published on 16 October, closes on 29 October 2026.
Ofgem said that in a period of high and volatile prices, a sharp fall in wholesale prices can pose a risk to market stability. Suppliers must buy energy ahead on behalf of their price cap customers, and if prices fall suddenly and customers leave the price cap in large numbers, those suppliers can face unavoidable losses on energy already purchased.
Under the charge, a supplier who gains a customer makes a payment to the supplier who lost that customer, partially mitigating losses on energy already purchased. Reporting of the consultation said the mechanism would be triggered if wholesale prices fall by more than 10 per cent, with gaining suppliers compensating rivals for 85 per cent of the drop beyond that point.
We're preparing for what is likely to be a difficult winter for many householdsNeil Kenward, interim director general of markets at Ofgem
"We're preparing for what is likely to be a difficult winter for many households," said Neil Kenward, interim director general of markets at Ofgem. He said the charge supports responsible energy purchasing and helps reduce the risk of instability in the market during periods of significant price volatility.
Ofgem reintroduced a licence condition for the charge earlier this year in dormant form, and is now proposing to activate it following recent wholesale price increases. The regulator said activating the charge would not automatically increase customer bills, with payments between suppliers only occurring if wholesale prices were to fall substantially. The consultation seeks views on the proposed activation and how it should operate, including trigger levels, notice periods and deactivation arrangements.
The charge previously operated between April 2022 and March 2024, during the previous gas crisis, when Russia's invasion of Ukraine sparked soaring wholesale prices. Coverage of the consultation reported that more than 30 energy companies went bust in that period.
The proposal drew criticism from Martin Lewis, the founder of MoneySavingExpert, who said on Friday that the mechanism would act as a switching penalty and that cheaper fixed and switcher deals would become more expensive if wholesale prices dropped. He questioned whether the supplier market faces the same risk of failures as it did in the early 2020s.
Domestic suppliers, consumer groups and charities, and third party intermediaries are invited to respond to the consultation by 29 October.
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