Household energy costs are set to fall as regulator Ofgem cracks down on sharp practices that added £109 to every electricity bill in 2021/22.
Consumers can pay more for energy due to electricity generators gaming the system to bolster their own profits.
These electricity generators sell power to suppliers, such as British Gas and Ovo, who in turn sell it on to households.
But some generators were able to boost their profits by taking advantage of a loophole in existing ‘balancing mechanism’ rules, meant to manage supply and demand for power.
Unfair: Generators hiked up power prices just when they knew consumers needed it the most
In short, these rules allowed energy generators to switch off in the early afternoon, knowing they could then charge higher prices for switching on again in the evening.
UK households use more electricity in the early afternoons and evening, when Britons return home from work and want to do things such as cook, heat their homes and watch television.
To meet this demand, generators that had switched off could then offer to switch back on – knowing that then could then charge suppliers much higher prices for electricity.
The extra cost of that is ultimately passed on to consumers in the form of higher electricity bills.
Ofgem said this added £3.1billion to household energy bills in the 2021/22 financial year, or around £109 per household.
On one day alone households paid £60million for this shady practice, on November 24, 2021, the watchdog highlighted.
At the time, the average home paid energy bills of £2,500 a year, and would have paid £3,549 if the Government’s Energy Price Guarantee had not capped these bills.
The energy regulator has now ruled that generators that do this after October 26 could face fines of up to 10 per cent of their turnover.
The new rules, called the Inflexible Offers Licencing Condition, will apply to any generators switching off for more than one hour.
Ofgem acting director for energy systems management and security Eleanor Warburton said: ‘This new licence conditions shows we will not tolerate electricity generators attempting to take advantage of the balancing mechanism system to make excessive profits through inflexible generation.
‘We believe the new licence condition strikes the right balance between protecting consumers and ensuring they pay a fair price for their energy while also enabling a competitive electricity market that provides fair returns for generators.
‘We’ll be monitoring the effectiveness of it to ensure it’s doing what it was designed to do.’
There are hundreds of different electricity generating firms across the country – you can see a full list of all electricity licensees on Ofgem’s website.
