Adapting the price cap methodology for resilience in volatile markets
Purpose of this call for input:
High and volatile gas and electricity prices continue to put severe strain on energy markets. The price cap has delivered significant benefit to consumers and provides a degree of protection from this price volatility. However, the current design could result in higher costs for consumers in the longer term unless it is amended to allow suppliers to better manage risk and costs. This paper discusses the current policy of the price cap and explores technical changes that could be made to the price cap methodology to ensure that it is more resilient to extreme commodity price volatility whilst continuing to protect consumers. Our goal is to protect the interests of consumers, and rebuild consumer and investor confidence in the market.
We are seeking views from stakeholders on whether change is needed, and if so, on the potential adaptations. If we decide there is a case for change, we will issue a formal policy consultation on changes to the price cap methodology in early 2022. Key questions are set out in the paper, with instructions on how to respond, ideally by 6 January 2022.