Ofgem and Elexon strike flexible energy deal while industry restrictions continue

• Ofgem to continue ban on acquisition-only tariffs until at least 31 March 2025
• They have partnered with Elexon to enable flexible energy use across the UK
• Until 30 September 2024 the energy price cap is set at £1,568 per year

Electricity demand is expected to rise by 50% by 2035

Ofgem has struck an agreement with Elexon to enable more flexible energy use across the UK’s local electricity distribution networks, while its rules continue to stop energy firms offering cheaper deals to customers until at least March 2025.

As part of the agreement, Elexon will act as market facilitator for local energy flexibility, with aims to enable more flexible energy use across the UK’s local electricity distribution networks. 

Elexon manages the Balancing Settlement Code (BSC), a legal contract all electricity participants must enter into in order to participate in the electricity market.

The expert in energy will work with Ofgem, the ESO (Electricity System Operator), ENA (Energy Networks Association), local networks, and Flexibility Service Providers (FSPs) to align local and national flexibility markets. 

In April 2022, a ban on acquisition-only tariffs was introduced by Ofgem to stop energy firms from offering low prices to win new customers at the height of the energy crisis, when the energy market was so volatile.

A consultation was launched by Ofgem on whether to lift the ban by October 2024, but it has confirmed the ban will be prolonged to at least 31 March 2025.

Ofgem said the responses it received showed “a strong feeling against short-term cut-price tariffs that shut out a supplier’s existing customers” and retaining the ban would mean customers “don’t have to keep moving to chase the best rate”.

Ofgem Director Eleanor Warburton, said: “To successfully operate the developing low carbon energy system of the future we need more flexible tools to make the best use of our intermittent wind and solar potential along with network and consumer assets to meet demand.” 

This involves the launch of a consultation on a proposed common Flexibility Market Asset Registration (FMAR) solution, which provides a single point of registration for assets such as EV chargers, heat pumps and home batteries. 

This would move away from the current system where FSPs aggregate assets on behalf of consumers.

This shift comes as the UK aims to become an independent green energy power, free from dependency on fossil fuels in a volatile market.

According to the Climate Change Committee, electricity demand is expected to rise by 50% by 2035 from a resulting uptake in wind and solar power and consequent EV’s and heat pumps. 

These are all steps towards the Government’s clean energy by 2030 goal, and on top of that could contribute to £30-£70bn in savings from flexibility by 2050, reducing bills for all consumers. 

Warburton continued: “We are already starting to see real acceleration in small scale flexible energy use as consumers increasingly access cheaper energy through more flexible consumption. 

“As market facilitator Elexon will be able to coordinate and align local and national energy markets to unlock the full value of flexibility. Meanwhile asset registration will create a streamlined one-stop sign-up point, which will help maximise consumer participation in flexible consumption.”

Martin Lewis, founder of MoneySavingExpert.com, said in May 2024 that the energy market was “broken” and urged the authorities to “stimulate competition to bring prices down”.

“In March, I was staggered when Ofgem told me ‘there is evidence that removing the acquisition-only tariff ban would benefit consumers’, but didn’t remove it ‘in case it was moving too quickly’,” Lewis said. 

“I disagreed and said we should throw the kitchen sink at getting people cheaper deals. So, this is better late than never.

“In normal times I wouldn’t call for firms to be allowed to offer new customers cheaper prices than existing, yet these aren’t normal times. The current UK retail energy system was built on the premise that firms would fight each other for customers and compete on price – yet that’s hardly happening.

“Most firms are currently happy to sit on their existing customers and profit – where once you could switch and save 30%, now it’s a few percent at most. So in reality the Price Cap, set up as a remedial backstop rate, is now pretty much the price.”

Until 30 September 2024, the energy price cap is set at £1,568 per year for a typical household who use electricity and gas and pay by Direct Debit, £122 lower than the £1,690 cap set between 1 April to 30 June 2024.