Energy prices could vary at different times of day

Domestic energy prices could be capped based on the time of day that households use their appliances, the regulator Ofgem has said.

The watchdog said it has launched early discussions about a "dynamic" price cap that changes as consumers became more flexible.

It said it would become harder to retain a universal price cap that is suitable for everyone.

So it is considering a range of options for changing the current system.

At present, Ofgem fixes the maximum price that can be charged for each unit of energy on a standard – or default – tariff for a typical dual-fuel household which pays by direct debit.

That affects about 29 million households in England, Wales and Scotland.

Ofgem said the price cap had worked well to protect customers from the "loyalty penalty", where customers on default tariffs paid higher prices, and from the worst of the recent volatility seen in the wholesale energy sector.

But it said habits and the market were changing as increasing numbers of consumers changed the way they consumed energy and began using electric vehicles, heat pumps and solar panels.

Tim Jarvis, Ofgem's director general of retail and markets, said: "We recognise the systems we have in place may need to change too.

"We're looking in detail at the elements of the price cap that have worked well and the challenges we've identified in recent years, while also considering how a wide range of future consumers will use and pay for energy to make sure we develop the right measures that will protect and benefit consumers across the board."

Other options included:

Mr Jarvis said there would be widespread consultation and the regulator's aim was to ensure the market worked for everyone.

There has been some experimentation with tariffs that vary according to when energy is used.

Some households have been offered discounts to use less electricity at peak times in an attempt to ease demand during cold snaps.