Price Cap (Energy)

For each tariff a supplier offers, it sets a unit rate for each kilowatt hour of gas or electricity used, and a standing charge payable every day regardless of consumption. Ofgem sets the energy price cap, which is the maximum amount a supplier can charge for a unit of energy and the standing charge together — it does not limit the cost of a customer's total bill, which still depends on how much energy is used.

The price cap protects customers on standard variable tariffs, where the unit rate can move up or down with the energy market; it 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. Ofgem calculates the cap based on wholesale costs, network costs, policy costs, operating costs, supplier earnings, headroom for uncertain costs and risks, a levelisation allowance, and VAT, and sets the cap level every 3 months.