The proposed energy price cap is planned to come into effect in December 2018, Ofgem has revealed in its price cap consultation overview.
The overview is the culmination of five working papers published by the regulator on the design of the cap. These included information on how it should set the initial level of the cap, and how it might periodically adjust it up and down to reflect underlying cost changes.
It states the cap is likely to be updated every six months, based on how suppliers’ costs change. To establish these it said it will look at four methodologies, and will then assess whether an additional “headroom” is needed above the cost base to take into account uncertainties and risks.
The price cap is due to be lifted in 2020, but the government can extend its duration by 12 months on up to three occasions.
Additionally, it emerged as part of the overview that “green deals” won’t be exempt from the cap, as was previously thought.
Ofgem said: “We want to prevent suppliers ‘gaming’ the cap – exempt tariffs should genuinely add to the overall support for renewable energy and reflect genuinely higher costs of providing the tariff.
“We propose not to provide an exemption. But we are considering providing derogations from the cap if suppliers satisfy us that their tariff genuinely adds to support for renewable energy and incurs materially higher costs. We would expect to set a high bar for agreeing to a derogation request.”
The announcement was welcomed by energy supplier Bulb, who said the regulator is “closing the so-called green loophole”.
Ofgem said the default tariff cap “extends protection to all consumers who do not engage in the market frequently”.
“This consultation sets out how we might design the cap to ensure that consumers on default tariffs receive lower bills, and suppliers improve their efficiency,” the regulator added.
As part of the publication of this overview Ofgem also announced two workshops that will take place in London in June for those wanting any further information. Registration for these is open now through its website.
Anyone wishing to respond to or participate in the consultation process has until 25 June to reply to Ofgem.