Energy price cap methodology:
4 publications
Energy price cap methodology: backwardation deadband
Ofgem consults on a backwardation deadband within the energy price cap methodology. Backwardation is when forward wholesale prices fall below spot prices; the deadband determines when supplier hedging strategies trigger cap-methodology adjustments.
Technical refinement of the cap's hedging assumptions. Affects how suppliers manage wholesale price risk and how the cap reflects forward markets. Inside-the-cap mechanism; cumulative bill impact depends on deadband width.
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Energy price cap methodology: backwardation deadband | Ofgem
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Energy price cap methodology: backwardation deadband
Publication type:
Consultation
Publication date:
27 August 2025
Last updated:
21 November 2025
Closed date:
26 September 2025
Status:
Closed (with decision)
Topic:
Energy pricing rules
Subtopic:
Energy price cap
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Outcome of our proposal to remove the backwardation deadband in the price cap methodology for the wholesale cost allowance.
Details of outcome
We have decided to remove the deadband from the backwardation allowance. We will allow costs currently subject to the deadband to be recovered over a rolling 12-month period. This will be implemented in cap period 16b (July to September 2026).
We received responses from 9 energy suppliers, 1 consumer group and a consumer. Industry was broadly supportive of our proposal to remove the backwardation deadband but there were varying views on the proposed implementation date.
Read the full outcome
Please note that the 'Wholesale cost allowance methodology annex 2: backwardation deadband decision' document attached below is not fully accessible. If you require an alternative format, please contact priceprotectionpolicy@ofgem.gov.uk .
Energy price cap methodology: backwardation deadband decision [PDF, 237.47KB]
Wholesale cost allowance methodology annex 2: backwardation deadband decision [XLSX, 9.67MB]
Responses to the Energy price cap methodology: backwardation deadband consultation [ZIP, 3.11MB]
Original consultation
Backwardation is when the cost to suppliers for an upcoming price cap period is higher than the cost of buying energy for a full year. Contango is the opposite.
We are reviewing whether including a deadband which sets a threshold beyond which the backwardation costs and contango benefits are passed through to consumers, remains appropriate.
In this consultation, we set out our proposal to remove the deadband, reducing uncertainty and risks across the energy market while continuing to protect consumers. We set out our main consideration for impacts on customers and suppliers as part of our rationale for proposing this change.
Who should respond
We would like views from people who have an interest in how we set the wholesale allowance in the default tariff cap. This includes:
energy suppliers
energy industry bodies
consumer groups
charities
Consultation documents
Backwardation wholesale allowance in the default tariff cap: consultation [PDF, 173.51KB]
Wholesale cost allowance methodology (Annex 2) with proposed changes on backwardation deadband [XLSX, 9.67MB]
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21 November 2025: added outcome of consultation.
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Energy price cap methodology: contracts for difference review
Ofgem consultation on the energy price cap methodology: contracts for difference review. Examines how CfD costs are reflected in the price cap.
CfD payments are a substantial line item in consumer bills, flowing through the Supplier Obligation levy. Cap methodology review tests whether the cap is accurately reflecting CfD costs through time. Sister to the Nuclear RAB cap-methodology update (Aug 2025) and the WHD cap-methodology updates. Together they tell the story of how redistributive levies are passed to consumers through the cap.
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Energy price cap methodology: contracts for difference review | Ofgem
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Energy price cap methodology: contracts for difference review
Publication type:
Call for input
Publication date:
27 August 2025
Closed date:
11 October 2025
Status:
Closed
Topic:
Energy pricing rules
Subtopic:
Energy price cap
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Energy price cap: programme of work for 2025 and 2026
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We are seeking input on whether we should consider making changes to the contract for difference allowance methodology in the default tariff cap.
Call for input description
In this call for input, we outline our views on points raised by suppliers and other organisations from our recent engagement. We are seeking clear evidence on whether we should make changes to the methodology for setting the contracts for difference allowance in the default tariff cap. We set out some questions we would like views on but welcome any wider views too.
This review is part of our wider review of the wholesale cost allowance in the default tariff cap, as outlined in our 2025 and 2026 programme of work.
Who should respond
We would like views from people who have an interest in how we set the additional wholesale allowances in the energy price cap. This includes:
energy suppliers
energy industry bodies
consumer groups
charities
How to respond
Submit your response by 10 October 2025 by emailing priceprotectionpolicy@ofgem.gov.uk .
Call for input documents
Contracts for difference allowance in the default tariff cap: call for input [PDF, 201.94KB]
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Energy price cap: programme of work for 2025 and 2026
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Energy price cap methodology: Nuclear Regulated Asset Base (RAB)
Ofgem decides on amendments to the energy price cap methodology to account for the Nuclear Regulated Asset Base (RAB) allowance. The Nuclear RAB scheme funds Sizewell C through a consumer-funded levy.
First operative integration of the Nuclear RAB scheme into the consumer price cap. Means Sizewell C construction-phase costs flow through to household bills from operational launch of the scheme. Sets the template for how future Nuclear RAB projects (any subsequent reactors) would be billed. The Bastiat unseen-cost principle in action: the seen is the strike-style certainty for the project; the unseen is years of consumer pre-payment for an asset that isn't generating yet.
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Energy price cap methodology: Nuclear Regulated Asset Base (RAB) | Ofgem
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Energy price cap methodology: Nuclear Regulated Asset Base (RAB)
Publication type:
Consultation
Publication date:
27 August 2025
Last updated:
21 November 2025
Closed date:
27 September 2025
Status:
Closed (with decision)
Topic:
Energy pricing rules
Subtopic:
Energy price cap
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Outcome of our consultation on amending the price cap methodology to account for the Nuclear Regulated Asset Base (RAB) allowance.
Details of outcome
We have decided to include an allowance for costs associated with the Nuclear RAB in the default tariff cap from 1 January 2026.
Our decision document considers responses received to the consultation and sets out the methodology for calculating the allowance.
The decision will ensure that default customers pay no more than the efficient costs incurred by suppliers in funding the Nuclear RAB scheme.
Read the full outcome
Note: the document attached below, Annex 4 - policy cost allowance methodology v1.22, is not fully accessible. If you require an alternative format, please contact retailpriceregulation@ofgem.gov.uk .
Amending the price cap methodology to account for the Nuclear Regulated Asset Base (nRAB) allowance.pdf [PDF, 177.20KB]
Annex 4 - policy cost allowance methodology v1.22 [XLSX, 494.25KB]
nRAB non-confidential responses [ZIP, 1.28MB]
Original consultation
Consultation description
We are consulting on our proposed methodology to account for the costs associated with the Nuclear RAB into the default tariff cap. The Nuclear RAB is a finance model that was introduced to fund new nuclear power projects under the Nuclear Energy (Financing) Act 2022.
We intend for the outcome of this consultation to be in place from January 2026 onwards.
Who should respond
We would like views from people with an interest in the default tariff cap levels and future electricity generation in the price cap. We particularly welcome responses from:
energy suppliers
other interested industry parties
consumer groups
charities
the public
Consultation documents
Amending the price cap methodology to account for the Nuclear Regulated Asset Base (RAB) allowance: consultation [PDF, 265.51KB]
Annex 4: policy cost allowance methodology (Nuclear RAB) [XLSX, 488.87KB]
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21 November 2025 outcome of consultation added
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Energy price cap methodology: group correction factors
Ofgem consults on group correction factors within the energy price cap methodology. Group correction factors are the cap-methodology adjustments that account for differences between supplier portfolio characteristics.
Internal cap-methodology refinement. Determines how the cap adjusts for supplier-specific factors (customer mix, payment method mix). Tighter factors limit cross-subsidies; looser factors allow supplier-specific circumstances to flow through.
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Energy price cap methodology: group correction factors | Ofgem
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Energy price cap methodology: group correction factors
Publication type:
Consultation
Publication date:
27 August 2025
Last updated:
21 November 2025
Closed date:
27 September 2025
Status:
Closed (with decision)
Topic:
Energy pricing rules
Subtopic:
Energy price cap
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Energy price cap
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Our decision to include the adjustment for the Group Correction Factors (GCFs) in the default tariff cap.
Details of outcome
We have decided to include an allowance for the GCFs in the default tariff cap from 1 January 2026. The decision document attached below sets out the rationale behind our chosen approach following the feedback we have received during the consultation. It also sets out the next steps for implementation and outlines our approach towards enduring updates.
Read the full outcome
Energy price cap methodology group correction factors decision [PDF, 157.03KB]
Energy price cap methodology group correction factors responses [ZIP, 685.32KB]
Original consultation
We are considering how best to ensure the treatment of electrical losses in the price cap continues to accurately reflect the relevant parameters used in settlement. This is because group correction factors have increased since the cap was introduced.
Group correction factors are used to correct residual discrepancies between energy entering the distribution system and energy allocated to suppliers. As a result of the increase, our existing assumptions no longer reflect actual system losses.
We are reviewing the assumptions behind these electrical loss factors and proposing a change to include an adjustment for group correction factors, so we can better account for this issue.
Who should respond
We would like views from people with an interest in the settlement process, including suppliers, and industry bodies.
Consultation documents
Energy price cap methodology: group correction factors consultation [PDF, 293.05KB]
Supplementary model demand and losses: draft for consultation [ZIP, 58.43MB]
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All updates
21 November 2025 added outcome of consultation.
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Summary
4 related publications from Ofgem. Ofgem consults on a backwardation deadband within the energy price cap methodology. Backwardation is when forward wholesale prices fall below spot prices; the deadband determines when supplier hedging strategies trigger cap-methodology adjustments.