The temporary amendment Ofgem made to the energy price cap to reflect additional costs incurred during the Covid-19 pandemic runs until March 2024, according to an Energy UK explainer published on 12 February 2024. The amendment is one of several one-off and temporary measures the regulator has introduced to let suppliers recoup costs arising from market instability1.
Energy UK states that suppliers incurred significant costs during the pandemic through higher customer debt and associated capital requirements, and were unable to recover these through the existing cap during the main Covid period from April 2020 to September 20211. The same explainer says the Market Stabilisation Charge, a separate temporary measure, will be removed in April 2024, and that cost recovery overall will last until around April 20241.
"Ofgem has amended the cap temporarily until March 2024 to reflect these additional costs incurred during Covid."
The explainer sets out the wider context in which the amendment sits. It says the cap, established under the Domestic Gas and Electricity (Tariff Cap) Act 2018, sets a maximum amount suppliers can charge per unit of energy for customers on default tariffs, calculated at what it would cost an "efficient supplier" to serve their customers, and includes a theoretical modest profit margin of 1.9%1. Energy UK says that on average domestic retail energy suppliers have been loss-making since the cap was introduced at the start of 2019, with losses of around £4bn according to Ofgem, and that 31 energy companies have ceased trading, adding £2.7bn in additional cost to energy bills1.
The explainer also describes two further allowances. Backwardation is designed to compensate for the shortfall where suppliers had to buy energy at prices higher than they were allowed to charge, and the Covid-19 True-up addresses pandemic-era costs; recovery of these costs has been allowed over 12 months, so costs incurred in 2022 are predominantly recovered in 20231. The Market Stabilisation Charge applies only when the price of energy has fallen significantly below the price used to set the cap, and is paid by the new supplier to the previous supplier rather than by the customer1.
| Measure | Status given by Energy UK |
|---|---|
| Covid-19 amendment to the cap | Runs until March 2024 |
| Market Stabilisation Charge | To be removed in April 2024 |
| Cost recovery overall | Lasts until around April 2024 |
Why it matters for households
The amendment is a component of the price cap that households on default tariffs pay, and its expiry changes what sits inside the cap calculation. Energy UK says the recovery period means profits may temporarily be higher than they have been, to partially offset previous multi-year losses1. The same explainer notes that energy bills remain around 80% higher than pre-crisis levels, that customer debt and arrears are at a record high of around £3 billion, double the level at the start of 2020, and that over one million customers are now more than £2,200 in debt without a plan in place to make repayments1. For a household, the practical effect is that the cap continues to include allowances tied to past supplier costs rather than only forward-looking supply costs, and that the removal of those allowances is a change to the cap's composition rather than a statement about the level of any future cap. The policy costs and levies that sit within bills are separate from these allowances.
What happens next
Energy UK gives two dated steps: the Covid-19 amendment runs until March 2024, and the Market Stabilisation Charge will be removed in April 2024, with cost recovery lasting until around April 20241. The explainer does not state the effect of these changes on the level of the cap, and no figure for that effect has been reported. Energy UK adds that the allowances are not a long-term fix to what it calls systemic issues facing the market1.