Millions of households could eventually face a very different electricity price cap under Ofgem’s new plans, designed to reward customers for using power when the system is cheaper and renewable generation is plentiful.
The regulator has launched a review of how the price cap should work for time-of-use tariffs as Britain moves towards Market Wide Half Hourly Settlement, which will expose suppliers to the actual cost of electricity used by their customers every 30 minutes rather than relying on broad demand profiles.
This means electricity is increasingly set to be worth very different amounts, depending on when it is consumed.
Power can be relatively cheap when wind and solar output is strong but considerably more expensive during peak periods when demand rises and the system relies more heavily on gas generation.
Ofgem says suppliers will therefore face higher costs for customers who use more electricity during expensive peak periods and lower costs where customers shift consumption into cheaper parts of the day.
The regulator wants the price cap to reflect that new reality rather than becoming a barrier to flexible tariffs.
More than 60% of domestic customers are currently protected by the cap, covering around 20 million households, but the existing system was designed when Economy 7 was virtually the only widespread time-of-use tariff and half-hourly settlement did not exist.
Three charging options
Ofgem is now considering three ways of changing it.
The simplest option would create two or three regulated time bands, with Ofgem setting maximum unit rates for each period based on the average cost of supplying electricity during those hours.
A second option would go further and create different versions of the cap for different types of customer. Electric vehicle owners could have one price-cap structure while households with heat pumps could have another, reflecting the very different ways they consume electricity.
The most radical proposal would allow suppliers to design their own time-of-use cap structures, using Ofgem’s half-hourly cost data and customer demand profiles. Ofgem would then check whether the resulting tariffs and customer groups were appropriate.
That approach would offer suppliers much greater freedom to develop tariffs but would also be considerably more complicated to regulate.
The reforms are closely linked to Clean Power 2030. Ofgem says Britain will need between 10GW and 12GW of consumer-led flexibility by the end of the decade as electricity demand grows and the system becomes increasingly dependent on intermittent wind and solar.
Electric cars, heat pumps, home batteries and smart appliances could all help by automatically moving demand away from expensive periods.
Ofgem also recognises the potential problem: customers who cannot easily change when they use electricity must still receive effective protection and should not be unfairly penalised by a more complicated market.
Around 24 million electricity supply points had moved onto half-hourly settlement by September, with migration expected to finish by May next year.
Ofgem is aiming for initial changes to the time-of-use price cap methodology during the second half of 2027. The consultation closes on 20 November.
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