Energy price cap: technical approach to market wide half hourly settlement

What this is about

Ofgem is consulting on how to adapt the energy price cap's wholesale allowance methodology for Market Wide Half-Hourly Settlement (MHHS). Under MHHS, suppliers will be settled based on their customers' actual half-hourly consumption rather than profiled demand, fundamentally changing how electricity purchase costs are allocated and creating cost variations across different customer bases.

The consultation addresses a core design challenge: MHHS enables time-of-use pricing that could unlock demand flexibility and reduce system costs, but the price cap's current single flat-rate structure prevents consumers from seeing these cost-reflective price signals. Ofgem must therefore develop new methodologies that maintain consumer protection while allowing the cap to reflect efficient costs under the new settlement arrangements and potentially enable time-of-use variants that preserve demand response incentives.

Options on the table

Updated single-rate methodology

Ofgem proposes adapting the current wholesale allowance calculation to reflect how suppliers will purchase electricity under MHHS. The methodology would continue to track efficient costs of serving price cap customers but account for the new settlement mechanics where suppliers face half-hourly imbalance charges based on actual consumption patterns. This maintains the existing flat-rate structure while ensuring the cap reflects genuine wholesale costs under MHHS. Suppliers with flatter customer demand profiles would benefit from lower settlement costs, while those serving more volatile demand patterns could face higher costs that the methodology would need to capture.

Time-of-use price cap variants

The regulator would develop at least one time-of-use price cap variant where prices vary by time period, likely following peak/off-peak or multi-period structures. These variants would preserve price signals that encourage demand shifting while maintaining consumer protection. Customers choosing these tariffs would face price caps that vary by time of day but remain capped at levels that prevent exploitation. Suppliers would benefit from better cost-reflectivity and reduced hedging requirements, while consumers could access lower bills through demand shifting. However, consumers unable or unwilling to shift demand could face higher costs during peak periods.

Risk mitigation mechanisms

Ofgem may introduce additional protections to address cost differences across suppliers' customer bases under MHHS. Some suppliers serve customer groups with inherently more predictable or flexible demand patterns, creating systematic cost advantages that could undermine competition. Risk mitigations could include adjustments to the wholesale allowance that account for these differences or separate treatment for distinct customer segments. This would level the playing field for suppliers but could reduce incentives for serving customers with more efficient demand patterns.

Questions being asked

Wholesale allowance methodology

The consultation seeks views on how to adapt the wholesale allowance calculation to reflect efficient costs under MHHS while maintaining the principle that the cap tracks genuine supply costs. This includes technical questions about how to capture half-hourly settlement mechanics in the allowance and whether the current hedging assumptions remain valid when suppliers face different risk profiles based on their customer mix.

Customer group differentiation

Ofgem asks whether and how to account for systematic cost differences across customer groups when setting the price cap. This addresses whether all price cap customers should face the same wholesale allowance or whether differences in demand patterns, settlement costs, or hedging requirements justify differentiated treatment. The regulator also seeks views on how to identify and quantify these differences without creating perverse incentives.

Time-of-use design principles

The consultation explores how to structure time-of-use price cap variants, including the number of time periods, the methodology for setting relative prices across periods, and how to ensure variants remain cost-reflective over time. Questions cover whether variants should follow existing time-of-use structures in the market or require bespoke designs, and how to balance consumer protection with demand response incentives.

Implementation approach

Ofgem seeks feedback on the timing and sequencing of changes, including whether to introduce time-of-use variants immediately with MHHS or phase them in later. This includes practical questions about how suppliers would transition customers between cap variants and how to communicate changes to consumers while maintaining protection levels.

Risk assessment and mitigation

The consultation asks for views on what additional risks MHHS creates for price cap customers and suppliers, beyond the settlement mechanics themselves. This covers whether existing consumer protections remain adequate, whether new forms of gaming or manipulation could emerge, and what safeguards might be necessary to maintain the cap's effectiveness as a backstop protection.

How to respond

Submit responses by 5 May 2026 by emailing priceprotectionpolicy@ofgem.gov.uk. Ofgem welcomes views from energy suppliers, industry bodies, network companies, consumer groups, charities, and individual consumers. The full consultation document "Energy price cap: technical approach to market wide half hourly settlement" is available as a PDF download from the consultation page.