Energy Price Cap

Ofgem sets the energy price cap, which is the maximum amount a supplier can charge for a unit of energy and standing charge together; it does not limit the total size of a customer's bill, since the more energy used the higher the bill. The price cap protects customers on standard variable tariffs — tariffs where the unit rate can go up or down depending on the energy market — but does not protect customers who have agreed a fixed tariff, have a business energy contract, or get their heat from a heat network or heating oil. Both the level of the cap and the standing charge can vary by region, payment method (Direct Debit, standard credit, or prepayment meter), fuel type, and meter type.

Ofgem calculates the cap from wholesale energy costs, network costs, policy costs (such as the Warm Homes Discount), operating costs, supplier earnings before interest and tax, a headroom allowance for uncertain costs and risks, a levelisation allowance, and VAT at 5%, using typical domestic consumption values (TDCV) to illustrate likely bills. Because these inputs move with energy markets and government policy, Ofgem sets the price cap level every three months and publishes a summary letter of any changes — meaning any specific cap figure quoted at a point in time will be superseded at the next quarterly review, and current levels should always be checked against Ofgem's published cap page rather than a fixed number.