Ofgem has confirmed the Market Stabilisation Charge (MSC) has been triggered for the first time, taking effect from Wednesday (16 November).
Brought in earlier this year, the MSC is paid by suppliers gaining new customers to the suppliers losing them if wholesale prices fall “considerably below” the relevant wholesale price cap index.
Although it has since been superseded by the government’s Energy Price Guarantee (EPG), the price cap is still in place to calculate the difference between the maximum unit rate suppliers can charge their customers under the EPG and the actual cost of supplying energy.
Prior to the introduction of the guarantee, Ofgem announced in August price cap on default tariffs would rise by £1,578 – or 80% – from the beginning of October to £3,549 per year for a typical dual fuel customer.
Soaring wholesale costs accounted for the vast majority of the increase, rising by 131% to make up £2,491 of the new cap level.
The MSC is triggered when the wholesale cost falls more than 10% lower than the wholesale cost element used to set the price cap.
It also includes a de-rating factor, currently set at 85%, which determines the proportion of nominal hedging losses beyond the trigger point that will be covered by the MSC.
The regulator confirmed that the MSC of £3.56/MWh for gas will be in place from 16 November to next Tuesday (22 November).
Ofgem has additionally confirmed that on 25 November it will be publishing a statutory consultation on options to extend the MSC by one year to 31 March 2024.
It will also consult on extending the ban on suppliers offering cheaper tariffs to lure new customers on a temporary basis, also to 31 March 2024.
Furthermore, the consultation will include an option of allowing Ofgem to extend both these measures further via written notice.
An Ofgem spokesperson said: “Our top priority is to protect consumers. Our short-term measures are stabilising the market to help reduce supplier failures which cost all domestic energy customers money.
“If suppliers are unable to recoup their genuine costs, this could put even more pressure on the sector, and lead to more supplier failures, which ultimately come at the cost of the consumer.”