Energy price cap methodology: group correction factors
Summary
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.
Why it matters
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.
Areas affected
Memo
What this is about
Ofgem is consulting on whether to add an allowance for Group Correction Factors (GCFs) into the default tariff cap from 1 January 2026. GCFs are the settlement mechanism that reconciles the residual discrepancy between energy measured entering the distribution system and energy allocated to suppliers at the Grid Supply Point. They sit alongside distribution loss factors and line loss factors as the means by which the volumes suppliers pay for are squared with the volumes physically flowing on the network. The cap, as designed in 2018, embedded a set of assumptions about loss factors that were thought to capture system losses in aggregate. The GCF was not separately accommodated because, at the time, it was small enough to fall within the noise of those assumptions.
That assumption no longer holds. GCFs have risen materially since the cap was introduced, with the result that suppliers are settling for and procuring a larger volume of energy than the cap's loss allowance assumes they need to recover. The gap is a structural under-recovery embedded in the methodology rather than a forecasting error or a one-off shock. Ofgem's proposal is to update the cap's loss treatment so that the wholesale allowance reflects the volume of energy suppliers actually have to buy in settlement, not the volume implied by the original 2018 loss assumptions. The consultation closed on 27 September 2025 and Ofgem confirmed on 21 November 2025 that the adjustment will be included in the cap from 1 January 2026.
How to respond
The consultation closed on 27 September 2025. Ofgem has since published its decision (21 November 2025) confirming inclusion of the GCF allowance in the default tariff cap from 1 January 2026.
For reference, the published materials are:
- Decision document: *Energy price cap methodology group correction factors decision* (PDF, 157 KB) - Responses bundle: *Energy price cap methodology group correction factors responses* (ZIP, 685 KB) - Original consultation: *Energy price cap methodology: group correction factors consultation* (PDF, 293 KB) - Supplementary model: *demand and losses: draft for consultation* (ZIP, 58.43 MB)
Implementation detail and the approach to enduring updates are set out in the decision document. Suppliers, settlement-facing industry bodies, and parties with views on how the cap should adapt as GCFs continue to evolve should engage with Ofgem on the enduring update mechanism rather than the original consultation, which is now closed.
Source text
Energy price cap methodology: group correction factors | Ofgem Please enable JavaScript in your web browser to get the best experience. BETA This site is currently in BETA. Help us improve by giving us your feedback . Close alert: 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 Show all updates Print this page Related links Energy price cap Share the page Share on Facebook Share on Twitter Share on LinkedIn 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] Print this page Related links Energy price cap Share the page Share on Facebook Share on Twitter Share on LinkedIn All updates 21 November 2025 added outcome of consultation. Close