Energy price cap methodology: backwardation deadband

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.

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