Ofgem’s Proposed Switching Charge Trades Cheaper Deals for Stability

Britain’s energy regulator is considering a safeguard that could make aggressive switching deals less attractive just as households face another expensive winter. Ofgem’s proposed market stabilisation charge would require a supplier gaining customers to compensate the supplier losing them when wholesale prices fall sharply.

The consultation describes a familiar problem. Suppliers buy energy in advance for customers on default tariffs. If market prices then fall and many customers switch to cheaper fixed deals, the original supplier can be left holding costly hedges without the revenue those customers would have provided.

The proposed mechanism would activate after a wholesale-price decline of more than 10%. A winning supplier would then compensate the losing supplier for 85% of the relevant drop. Ofgem says activation would not automatically raise bills, but the transfer reduces how much of a wholesale-price decline a new supplier can pass to consumers.

That is the central trade-off. The charge may lower the probability of disorderly supplier failures, which imposed costs on the wider market after more than 30 companies collapsed during the earlier energy crisis. It can also damp competition by making the cheapest acquisition offers more expensive.

Ofgem is consulting on trigger levels, notice periods and how the charge should be switched off, with responses due by October 29, 2026. The decision will determine whether policymakers place more weight on resilience or on allowing falling wholesale prices to reach households quickly.