Ofgem Price Cap Explained: How It Works, Who It Affects and Current Levels

What Is the Ofgem Price Cap

The Ofgem energy price cap is a regulatory limit on the unit rates and standing charges that energy suppliers can charge domestic customers on default tariffs (standard variable rate tariffs). Introduced under the Domestic Gas and Electricity (Tariff Cap) Act 2018, the cap was designed to protect consumers on variable tariffs from excessive pricing. The cap limits the rate per unit of electricity and gas and the standing charge -- it does not set a maximum total bill amount, because total cost depends on how much energy the customer uses.

How the Price Cap Is Calculated

Ofgem calculates the price cap quarterly based on wholesale energy costs, network costs (the cost of maintaining the pipes and wires), policy costs (such as levies to fund renewable energy), operating costs, and a margin for suppliers. Wholesale energy costs are the largest variable -- when wholesale prices rise, the cap typically rises on the next quarterly review; when they fall, the cap falls.

Who the Price Cap Applies To

The price cap applies to domestic energy customers in England, Scotland and Wales who are on a default tariff -- typically the standard variable rate tariff. It applies whether payment is by direct debit, prepayment meter or on receipt of a quarterly bill. Customers on fixed-rate tariffs are not subject to the cap during their fixed term -- their rates are locked in at the level agreed when the tariff was taken out. Northern Ireland has a separate energy regulatory regime.

Fixed Tariffs and the Price Cap

Fixed-rate energy tariffs are not subject to the price cap but can be compared against it. If wholesale energy prices fall and the price cap falls below a fixed-rate tariff's unit rates, customers on fixed tariffs may pay more than those on the capped default tariff. Exit fees and the security of fixed rates for budgeting purposes are factors to weigh against potential savings from switching to the capped variable rate.

Current Price Cap Levels

Ofgem publishes the current price cap levels on its website, updated quarterly. The cap is expressed as a set of unit rates (pence per kilowatt-hour) and standing charges (pence per day) for gas and electricity. The example bill figures published by Ofgem are based on a typical household using 2,700 kWh of electricity and 11,500 kWh of gas per year -- actual bills vary with usage.

Frequently Asked Questions

Does the price cap mean my energy bill is capped at a fixed amount?

No. The price cap limits the unit rates and standing charges your supplier can charge on a default tariff -- it does not cap your total bill. Higher energy usage results in a higher bill even with the cap in place. Ofgem publishes example bill figures based on typical usage to provide a comparison benchmark.

How often is the Ofgem price cap reviewed?

The price cap is reviewed quarterly: in January, April, July and October. Changes take effect at the start of the relevant quarter. Ofgem announces the new cap level approximately six weeks before it takes effect.

Does the price cap apply to fixed energy tariffs?

No. Fixed-rate energy tariffs are agreed at a specific unit rate for the duration of the fixed term. The price cap does not apply to fixed tariffs -- only to default (standard variable) tariffs. Customers on fixed tariffs are not protected by the cap but benefit from rate certainty during the fixed period.

Who sets the Ofgem price cap?

Ofgem (the Office of Gas and Electricity Markets) sets and reviews the price cap under powers granted by the Domestic Gas and Electricity (Tariff Cap) Act 2018. Ofgem is the independent regulator for gas and electricity markets in Great Britain, accountable to Parliament.