How the Ofgem Energy Price Cap Actually Works

Quick Answer: How the Ofgem Energy Price Cap Actually Works

The Ofgem energy price cap is a limit on the maximum rate per unit of gas and electricity, plus the daily standing charge, that suppliers can charge customers on a standard variable or default tariff in Great Britain. It is not a cap on your total bill. If you use more energy, you pay more, even under the cap. Ofgem reviews and resets the cap every three months based on wholesale energy costs, network costs, policy costs and supplier operating costs. The cap does not apply to customers who have actively chosen a fixed term tariff, since those rates are set by contract rather than by Ofgem.

What the Price Cap Actually Limits

This is the single most misunderstood point about the price cap, so it's worth being precise. Ofgem does not set a maximum amount you will pay for energy each year. It sets a maximum price per unit, in pence per kilowatt hour, plus a maximum daily standing charge. The widely reported annual figure, such as the £1,723 confirmed for October to December 2026, is only an illustration based on what a "typical" household is assumed to use. If your actual usage is higher than that assumption, your real bill will be higher than the headline figure, and if you use less, you'll pay less.

The cap applies specifically to standard variable tariffs, sometimes called default tariffs, which is what you're automatically placed on if you've never switched supplier or if a previous fixed deal has ended without you choosing a new one. Around 22 million households in Great Britain were on this type of tariff as of 2026. If you've actively chosen a fixed term contract, your rates are set by that agreement instead, and the cap doesn't directly apply to you until your contract ends.

How Often Does the Cap Change?

Ofgem reviews and resets the price cap every three months, aligned to fixed quarterly periods:

Each new cap relies on an assessment window of average wholesale energy costs in the weeks leading up to the announcement, alongside network costs, government policy costs, and an allowance for supplier operating costs and profit margin. This is why the cap can move up or down between quarters depending on how wholesale gas and electricity prices have shifted, rather than following a simple annual pattern.

What's Actually Inside Your Bill

The price cap doesn't just set one number, it sets several separate components that combine to determine your bill:

• Unit rate for electricity, charged per kilowatt hour used

• Unit rate for gas, also charged per kilowatt hour used

• Standing charge for electricity, a fixed daily amount charged regardless of usage, covering the cost of maintaining the network connection to your home

• Standing charge for gas, the equivalent fixed daily charge for gas supply

Because standing charges are fixed regardless of how much energy you use, low usage households, such as people who live alone or spend a lot of time away from home, end up paying a higher proportion of their total bill through standing charges compared with higher usage households. This is one reason two homes on an identical tariff, with very different usage patterns, can see quite different percentage increases when the cap changes.

Price Cap vs Fixed Tariffs: What's the Real Difference?

Neither option is inherently better. A fixed tariff protects you if prices rise but locks you out of savings if they fall, while staying on the cap means your bill moves in both directions along with Ofgem's quarterly review.

Why the Cap Doesn't Affect Everyone Equally

Because gas and electricity are priced separately within the cap, quarterly changes rarely affect all households the same way. For the October 2026 cap update, for example, gas costs rose around 8% while electricity costs stayed close to flat, meaning households that heat with gas felt a much larger increase than all electric households, even though both are technically on the same capped tariff structure.

This is a useful thing to check on your own bill. Looking at the breakdown between your gas and electricity charges, rather than just the total, tells you which part of a cap change actually affects you and by how much.

Sources & Authoritative Citations

1. Ofgem, "About the energy price cap" and quarterly price cap announcements

2. Ofgem, price cap methodology and typical domestic consumption values guidance

3. GOV.UK, energy price cap background and consumer guidance

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