Households are being warned cheap energy deals could be under threat as the industry regulator looks to introduce a charge to prevent suppliers going bust this winter.
Ofgem – the UK energy watchdog – has launched a consultation to switch on what is known as the Market Stabilisation Charge (MSC) as soon as November – which could see energy suppliers having to pay a charge to rival suppliers in certain circumstances if wholesale energy prices fall.
Ofgem currently has a cap that limits the maximum unit rates and daily standing charges energy suppliers can charge for default tariffs – and this goes up or down depending on wholesale energy costs.
Ofgem want to bring in the charge as it says households will be gearing up for a “difficult winter” and wants to provide protections to energy suppliers who may see customers leave in large droves for cheaper deals.
Martin Lewis, founder of the MoneySavingExpert.com consumer website, said the MSC would probably lead to smaller savings for consumers who switch supplier.
He added: “That’s because any firm taking on a new customer, including on a cheap fix or other specialist tariff, will have to pay compensation to that customer’s old supplier, if they switch. It’s basically a form of switching penalty.”
The development comes as the Government is under pressure to help households, especially the most vulnerable ones, cope with soaring energy costs.
When he became Prime Minister in July Andy Burnham announced a temporary removal of VAT on electricity bills in order to help with the cost of living. He said at the time: “I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister.
“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
Suppliers can be left vulnerable when they have bought energy in advance at a high price and could then suffer financial losses if prices later tumble sharply and high numbers of customers switch to other firms in search of cheaper deals.
Important News: @Ofgem’s just launched a ‘consultation’ about switching on the Market Stabilisation Charge as soon as November. It doesn’t sound a big deal, but it could be, it ain’t good for consumers and I don't want it to slip under the radar.
— Martin Lewis (@MartinSLewis) October 16, 2026
In a nutshell, it means if…
Neil Kenward, interim director-general of markets at Ofgem, said: “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.”
“In volatile market conditions, it’s important that suppliers can continue to secure the energy their customers need without taking unsustainable risks.”
Under the MSC, if wholesale energy prices fall more than 10 per cent below the level built into the Ofgem price cap – and a customer switches to a cheaper tariff with a different supplier – that new supplier has to pay the old one a charge.
The new firm must pay the previous one 85 per cent of the drop in wholesale rates beyond that 10 per cent.
If the wholesale energy price built into the price cap is £1,000 but it drops to £800, there is no charge on the first £100 but then the new supplier has to pay the old one 85 per cent of the second £100 as it has gone beyond 10 per cent.
The MSC was previously introduced between April 2022 and March 2024 after Russia’s invasion of Ukraine caused energy prices to surge.
Lewis said he does not like the idea of the charge being reintroduced as he doubted suppliers were at risk of going bust.
“A good few energy firms have made large profits since then and protecting them over winter by effectively dampening competition because it’s ‘not their fault’ feels raw,” he added.
From October, the Ofgem price cap was increased by 4 per cent, meaning a typical household is paying £1,723 a year for gas and electricity, but energy consultants Cornwall Insights have predicted the cap may climb by a further £149 a year in January 2027.
A spokesperson for the Department for Energy Security and Net Zero, said: “This is a matter for Ofgem. We are working with the regulator to build a stable energy market which puts consumers first.”