What is the history of Ofgem’s energy price cap? How has it evolved over the years, and what can you expect it to be in the future?
Data from the Office for National Statistics (ONS) shows that in September 2025, 88% of adults in the UK cited the cost of living as the most pressing national concern. For many households, that anxiety stems directly from rising gas and electricity bills, a cost that has fluctuated sharply over the past few years.
To keep those bills within reason, Ofgem’s energy price cap was introduced in 2019 as a consumer safeguard. It doesn’t freeze energy bills, but it sets a maximum limit on how much suppliers can charge per unit of energy and for standing charges. The aim was to protect households from overpaying during periods of market volatility, ensuring prices better reflect the underlying cost of energy rather than excessive supplier profit margins.
Understanding the history of the price cap reveals more than a set of numbers. It tells the story of how the UK’s energy market has responded to global crises, policy changes, and shifting economic pressures. Tracing its evolution helps explain why bills rose so sharply during the 2022 energy crisis, why they’ve since fallen, and what could influence future prices.
Key Takeaways on the History of the Energy Price Cap:
- Ofgem’s energy price cap was introduced in 2019 to limit how much suppliers can charge per unit of gas and electricity on default tariffs.
- The cap helps protect consumers from sharp price increases while allowing suppliers to recover essential operating and network costs.
- It is reviewed every three months, in January, April, July, and October, to reflect changes in wholesale prices and policy costs.
- As of October–December 2025, the cap is around £1,755 per year for a typical dual-fuel household paying by Direct Debit.
- The cap doesn’t limit total bills, only the rate per unit of energy, meaning higher usage still results in higher costs.
- Understanding how the cap has changed over time helps explain the UK’s cost-of-living challenges and what to expect in future reviews.
What Does the Energy Price Cap Actually Do?
The energy price cap was designed to make the UK energy market fairer. It limits how much energy suppliers can charge customers on standard variable or default tariffs, ensuring those who don’t regularly switch suppliers still pay a reasonable rate for their gas and electricity.
The cap covers two main components of your bill:
- Unit rates — the price per kilowatt-hour (kWh) of gas or electricity you use
- Standing charges — the fixed daily amount you pay to stay connected to the grid
Although it doesn’t set a hard limit on the total cost of your energy, it restricts how high the rates can go. If you use more energy, your bill will still be higher, but the rates you pay are protected from excessive supplier mark-ups.
When Ofgem introduced the price cap in January 2019, the goal was to create a transparent link between wholesale energy costs and household bills. Each quarter, Ofgem reviews market conditions and adjusts the cap to reflect changes in the costs that suppliers face, including wholesale gas and electricity prices, network maintenance, environmental levies, and VAT.
This helps stabilise household budgets during unpredictable market swings. When wholesale prices spike, the cap prevents suppliers from passing the full increase to customers all at once. When prices fall, the cap ensures those savings are passed down more quickly.
To find out more about what you can expect to pay, check out our complete guide on appliance running costs and our guide on the average electricity costs per kWh from October onwards.
How Has Ofgem’s Energy Price Cap Evolved?
The Ofgem energy price cap has gone through some of the most dramatic changes in the UK’s energy market history. Introduced in January 2019, it was initially intended to protect customers from long-term overcharging by ensuring that default tariffs reflected the actual costs of supplying energy.
What started as a steady, predictable mechanism quickly became one of the country’s most closely watched policy tools as wholesale energy prices soared. The cap, once a quiet regulatory measure, suddenly became a headline feature during the 2022 energy crisis, shaping government support schemes, influencing inflation, and determining household budgets nationwide.
| Period | Annual Cap (Typical Household) | Electricity Rate (p/kWh) | Gas Rate (p/kWh) | Key Context |
| Jan 2019 | £1,137 | 17.0 | 3.7 | There was a modest drop due to falling wholesale prices during the early pandemic. |
| Apr 2020 | £1,126 | 16.8 | 3.6 | The first significant rise occurred as post-pandemic demand surged. |
| Oct 2021 | £1,277 | 20.8 | 4.1 | First significant rise as post-pandemic demand surged. |
| Apr 2022 | £1,971 | 28.3 | 7.4 | Wholesale gas crisis drives cap up sharply. |
| Oct 2022 | £3,549 | 51.9 | 14.8 | Record-high cap; government introduces Energy Price Guarantee to subsidise bills. |
| Jan 2023 | £4,279 | 67.4 | 17.1 | Peak of crisis; suppliers face extreme volatility. |
| Jul 2023 | £2,074 | 30.1 | 7.5 | Wholesale relief leads to the first significant reduction. |
| Oct 2023 | £1,923 | 27.4 | 6.9 | Further easing as markets stabilise. |
| Apr 2024 | £1,690 | 24.5 | 6.0 | Cap falls to its lowest post-crisis level. |
| Apr 2025 | £1,849 | 27.0 | 6.3 | Modest increase reflecting higher network costs. |
| Jul 2025 | £1,720 | 25.7 | 6.3 | A price cap was introduced under Theresa May’s government to protect default tariff customers. |
| Oct 2025 | £1,755 | 26.3 | 6.3 | Slight rebound as wholesale gas prices edge upward again. |
Understanding the Shifts in Ofgem’s Energy Price Cap
From 2019 to early 2021, the price cap worked as intended and kept bills fair while allowing suppliers a modest profit margin. Then, in late 2021, a global surge in gas demand collided with reduced supply and the onset of the Russia–Ukraine conflict, sending wholesale prices to unprecedented highs.
By early 2023, the cap had risen above £4,200 per year for a typical household. Government intervention through the Energy Price Guarantee limited what households actually paid, but the scale of those increases underscored how sensitive the UK’s energy system had become to external shocks.
Since then, the market has cooled, and cap levels have dropped significantly, though they have not yet reached pre-crisis norms. In 2025, the average household under the cap pays roughly 35% more than in 2019, reflecting persistent network, policy, and infrastructure costs that remain high even as wholesale energy prices decline.
Recommended reading:
- Should I fix my energy bills?
- How much should my energy go up?
- UK Energy Security Strategy Explained
- Where does the UK get its gas from?
- Average carbon footprint per household UK
How Does Ofgem Calculate the Price Cap?
Understanding how Ofgem determines the energy price cap helps explain why bills sometimes rise even when wholesale costs appear to fall. The cap isn’t a single number chosen by policymakers; it’s a structured formula designed to reflect real-world supplier costs while protecting consumers from unfair pricing.
1. Wholesale Energy Prices
The most significant and volatile component is the wholesale cost of gas and electricity, which refers to what suppliers pay on the energy market. Ofgem calculates the cap using a lagged average of wholesale prices over several months. This approach smooths out short-term market spikes while keeping the cap responsive to broader trends.
When global demand increases, supply is disrupted, or gas storage levels drop (as seen during the 2022 crisis), wholesale prices rise sharply, and those increases feed into future cap periods. Conversely, when global markets stabilise, the effect works in reverse, though it can take a quarter or two before consumers feel it.
2. Network and Distribution Costs
These costs cover the maintenance and operation of the UK’s energy infrastructure, including the wires, substations, and pipelines that deliver energy to homes. Network charges vary by region, which is why standing charges differ across the country. For example, a household in northern Scotland might pay a slightly higher daily charge than one in London due to greater transmission distances and maintenance costs.
3. Operating and Supplier Costs
This includes the administrative and customer service costs that come with running an energy company: billing, call centres, meter readings, and bad debt provisions. Ofgem allows suppliers to recover reasonable operational expenses but limits how much profit they can build into those margins.
4. Environmental and Policy Levies
A portion of every energy bill supports national initiatives such as the Renewables Obligation, Feed-in Tariffs, and Contracts for Difference, which help fund low-carbon electricity generation and reduce overall emissions. These environmental and policy costs have steadily increased as the UK accelerates its shift toward cleaner energy.
5. VAT and Supplier Margin
The final step in the calculation adds VAT (currently 5% on domestic energy) and a small supplier margin to cover commercial risk. Together, they form the total rate per kilowatt-hour and the standing charge figure that appear in the published cap.
Visualising the Breakdown
The price cap can be roughly broken down as follows:
| Cost Component | Approximate Share of Total | Description |
| Wholesale Energy | 45–55% | Cost of buying gas and electricity on global markets |
| Network Costs | 15–20% | Maintaining and operating the energy grid |
| Operating Costs | 10–15% | Billing, customer service, and metering |
| Environmental & Policy | 10–12% | Funding renewable and low-carbon programmes |
| VAT & Supplier Margin | 3–5% | Government tax and supplier allowance |
Ofgem reviews the formula regularly to ensure it remains fair and transparent. By adjusting quarterly, Ofgem strikes a balance between price stability for consumers and financial sustainability for suppliers. Although this process cannot shield households completely from global price swings, it ensures that energy bills reflect real costs rather than excessive mark-ups or delayed price reactions.
Impact of Ofgem’s Energy Price Cap on Households and Bills
The energy price cap directly shapes what millions of UK households pay for gas and electricity. For most people, it represents the difference between affordability and financial strain, especially since energy costs have become a defining feature of the cost-of-living crisis.
What a “Typical Household” Actually Means
For each new cap, the quoted figure (for example, £1,755 per year for October–December 2025) refers to a “typical use” household paying by direct debit. Ofgem estimates that annually, the typical household in England, Scotland, and Wales uses:
- 2,700 kWh of electricity
- 11,500 kWh of gas
If your household uses more energy than these averages, such as living in a larger home or running electric heating, your bill will naturally be higher than the published cap. Similarly, if your usage is lower, you’ll pay less. The cap restricts rates, not total spending.
Ofgem’s Current Energy Price Cap Levels and What They Mean
| Period | Annual Cap (Typical Household) | Change from Previous Quarter | Key Factors |
| Apr–Jun 2025 | £1,849 | +6% | Higher network and operating costs |
| Jul–Sep 2025 | £1,720 | −7% | Lower wholesale gas prices |
| Oct–Dec 2025 | £1,755 | +2% | Slight rebound in wholesale costs |
For many households, this translates to around £140–£150 per month on a standard dual-fuel tariff, assuming average usage. Those on prepayment meters or paying quarterly often face slightly higher annual costs due to different payment structures.
Regional Differences in Ofgem’s Energy Price Cap Levels
Energy prices in the UK are not uniform. Standing charges, which are the daily fixed cost you pay regardless of usage, vary across regions because of differences in network maintenance costs.
For example:
- A household in London may pay around 53p/day for electricity.
- A home in northern Scotland might pay closer to 63p/day, reflecting longer transmission distances and higher infrastructure costs.
Although these differences seem minor, over a year they can add £30–£40 to a household’s total bill.
How the Cap Has Helped
During the peak of the energy crisis in 2022–2023, wholesale gas prices surged to levels more than 10 times their pre-pandemic average. Without the price cap, energy suppliers could have immediately passed nearly all those costs onto consumers. By limiting rate increases, Ofgem’s cap prevented millions of households from facing even higher bills and gave the government time to implement the Energy Price Guarantee, which further subsidised costs.
The cap’s stabilising effect also supports broader economic resilience. When bills are predictable, consumers can plan spending more confidently, a crucial factor in managing household budgets amid inflation and rising living costs.
Criticisms and Limitations of Ofgem’s Energy Price Cap
While the energy price cap has protected millions of UK households from extreme price volatility, it has also faced strong debate among economists, suppliers, and consumer groups. Some argue it has become a vital safeguard against unfair pricing, while others believe it distorts competition and discourages innovation within the energy market.
1. Rising Standing Charges
One of the most consistent public concerns is the steady rise in standing charges, which are the daily fixed costs you pay regardless of energy use. Even as the cap brought down unit rates in 2024 and 2025, standing charges remained high or increased in several regions. For many low-usage households, this means paying more overall despite using less energy. Critics argue that this structure penalises smaller households and discourages energy conservation.
2. Limited Protection Against Wholesale Shocks
Although the cap softens sudden market spikes, it cannot entirely shield consumers when wholesale prices rise dramatically. During the 2022–2023 energy crisis, prices climbed faster than the cap could adjust, leading to government intervention through the Energy Price Guarantee. This exposed the cap’s most significant limitation, where it regulates supplier margins but cannot control global energy markets.
3. Supplier Viability and Market Competition
From an industry perspective, the cap has placed pressure on smaller suppliers with limited financial reserves. When wholesale prices rose sharply, several suppliers went out of business because the cap prevented them from passing on costs quickly enough. The collapse of over two dozen energy firms between 2021 and 2022 highlighted how a rigid price ceiling can threaten market diversity.
4. Complexity and Transparency
Although Ofgem provides detailed documentation, the cap’s calculation method remains complex for the average consumer. Many households still misunderstand what the cap covers, leading to confusion when bills vary due to usage or regional differences. Greater transparency and clearer communication about how Ofgem derives the cap could help restore public confidence.
5. Long-Term Market Effects
The cap can discourage consumers from switching suppliers, as it narrows the price gap between standard and fixed deals. Over time, this could reduce healthy competition in the retail energy market, which is the very condition the cap was initially designed to correct.
6. Broader Affordability Issues
Although the cap helps moderate rates, it doesn’t directly address energy poverty or household debt. For vulnerable consumers, even capped prices can remain unaffordable, particularly when combined with high food, housing, and transport costs. This has prompted calls for complementary measures such as targeted rebates, social tariffs, and better home insulation policies.
Despite these criticisms, the cap remains a necessary part of the UK’s energy framework and a stabilising force during an era of global uncertainty. Its effectiveness, however, depends on continual refinement and clear communication about what it can and cannot achieve.
Future Outlook and Forecasts
The energy price cap remains one of the most important indicators of where UK household energy costs are heading. As of late 2025, the cap has stabilised after years of turbulence, yet its future continues to depend on factors far beyond Ofgem’s control, from global gas markets to domestic energy infrastructure investment.
Short-Term Outlook (2026–2027)
Analysts, including Cornwall Insight and the UK Parliament Research Service, project modest fluctuations in the cap through 2026. If wholesale prices remain steady, the cap could hover around £1,700–£1,800 per year for a typical household. However, if gas demand rises sharply in colder months or supply from Europe tightens, the cap could edge upward again.
The UK’s ongoing reliance on imported natural gas leaves it vulnerable to geopolitical events and seasonal pressures. Although storage capacity has improved since 2022, it still falls short of other European countries, meaning sudden price shocks can ripple quickly through the system.
Possible Scenarios
| Scenario | Description | Estimated Cap Range |
| Base Case | Wholesale prices remain steady; network costs rise moderately | £1,700–£1,850 |
| Optimistic Case | Mild winter, strong renewable output, lower global demand | £1,600–£1,700 |
| Pessimistic Case | Global supply disruption or a colder winter drives gas prices higher | £1,900–£2,100 |
Beyond 2027: Toward a New Pricing Model
There are ongoing discussions about whether the current cap system will remain in place long-term. The Committee on Fuel Poverty, established by the Department for Energy Security and Net Zero, acknowledges that fixed bill elements or standing charges are regressive and likely to increase due to net zero policies.
It proposes pricing models like rising block tariffs (RBTs) as potential policy options to improve bill equity. RBTs involve providing a basic amount of energy at low or no cost, then imposing higher tariffs on additional usage. This structure aims to ensure affordability for essential energy needs while charging more for excessive consumption.
While no major structural reforms have been confirmed, it’s clear the future of the price cap will be shaped by the UK’s broader move toward decarbonisation, smarter energy management, and consumer protection in a changing market.
Final Thoughts on the History of Ofgem’s Energy Price Cap
The history of Ofgem’s energy price cap tells a larger story about how the UK balances market freedom with consumer protection. What began as a safeguard against excessive pricing has become a central feature of national life, influencing household budgets, government policy, and even the broader cost-of-living debate.
While the cap cannot eliminate the effects of global energy volatility, it remains a crucial tool for transparency and fairness. Each adjustment reflects the ongoing challenge of maintaining affordable energy while funding infrastructure upgrades and supporting the shift toward cleaner, low-carbon power.
Looking ahead, the cap’s future will likely evolve alongside wider reforms in the energy sector. Ideas such as rising block tariffs and dynamic pricing could complement the system, ensuring that vulnerable households receive greater support while encouraging energy efficiency across the board.
Understanding how the cap has changed, and what drives those changes, gives every household more clarity over their energy bills. In an era when affordability and sustainability are both national priorities, that knowledge is power.
FAQs on the History of Ofgem’s Energy Price Cap
What Is The Energy Price Cap, and When Was It Introduced?
The energy price cap sets a maximum limit on how much suppliers can charge per unit of energy (and in standing charges) for customers on default tariffs. Ofgem introduced it on 1 January 2019 under the Domestic Gas and Electricity (Tariff Cap) Act.
How Often Is The Price Cap Reviewed and Updated?
The cap is currently reviewed every three months (quarterly), in January, April, July, and October, to reflect changes in wholesale costs, network charges, and policy costs.
What Costs Are Included In The Price Cap Calculation?
The cap incorporates several cost components, including wholesale energy costs, network and distribution costs, operating and supplier costs, environmental/policy levies, VAT, and a limited supplier margin.
Who Is Covered By The Price Cap?
The cap applies to households on standard variable/default tariffs paying via Direct Debit, standard credit, or prepayment meters. It does not apply to fixed-term or special tariffs negotiated with suppliers.
Does The Price Cap Limit My Total Bill?
No. The cap limits the rates you pay (per kWh and standing charge), not the total bill. If you consume more energy than the “typical household” benchmark, your bill may exceed the quoted cap.
Sources and References:
Office for National Statistics – Public opinions and social trends, Great Britain: September 2025
Ofgem – Energy price cap explained
Ofgem – Average gas and electricity usage
Cornwall Insight – Predictions & Insights into the Default Tariff Cap (Price Cap)
GOV.UK – Exploring options for improving energy bill equity for fuel-poor households