Energy regulator warns of 'difficult winter' as it proposes new switching charges that could ratchet up bills

Households risk missing out on cheaper energy deals during a 'difficult winter' as the regulator considers introducing charges for suppliers when customers switch. 

Ofgem today said it was looking to activate the Market Stabilisation Charge (MSC), which makes energy suppliers compensate rivals if customers switch before using the energy the company had bought for them at high wholesale prices.

It follows a surge in wholesale energy prices and market volatility since the start of the Middle East conflict, which Ofgem says poses continued risks to consumers.

However, activating the MSC would mean that if wholesale prices were to drop sharply, fixed deals would become more expensive to protect suppliers.

Neil Kenward, Ofgem's interim director general of markets, said: 'We're preparing for what is likely to be a difficult winter for many households.

'While the energy market is stronger than it was during the energy crisis, volatility remains and the Market Stabilisation Charge helps to protect consumers from that volatility.'

The MSC, which was introduced in 2022 at the height of the energy crisis, is designed to reduce instability and protect suppliers in periods of significant price volatility.

'When wholesale prices fall sharply, suppliers that have bought energy in advance for customers on default tariffs can face losses if large numbers of customers switch to cheaper fixed deals,' Ofgem said.

If prices drop more than 10 per cent below the price cap level and customers switch, the supplier will have to compensate the previous energy firm with the charge likely to be added to the new bill.

The energy watchdog said activating the MSC 'would not automatically create charges or increase customer bills,' but critics say it dampens competition and prevents firms from lowering bills for customers when wholesale prices fall.

While the Prime Minister has indicated energy bill support for lower-income households, the price cap is forecast to jump by 21 per cent to £2,084 in January.

Experts are urging households to consider a fixed deal, the cheapest of which is £391 lower than where the cap is expected to be next year.

Richard Neudegg, director of regulation at Uswitch, said: 'Ofgem considering reintroducing the Market Stabilisation Charge, which is designed to slow the pace at which prices could fall for customers if wholesale prices fall, is not the right thing for the regulator to be doing.

'However, right now, prices are going the other way – they are rising, with the January price cap currently predicted to rise another 25 per cent.

'That makes it all the more important for consumers still stuck on Ofgem’s price cap to act now. This winter is going to be tough, and opting for a competitive fixed tariff now is the best way to ensure protection from imminent rising costs.'