Breakdown of the default tariff price cap (GBP £)

Chart

Javascript is required to render chart Breakdown of the default tariff price cap (GBP £).

Source: Ofgem.

Information correct as of: October 2020

This chart shows a breakdown of the costs that make up the default tariff price cap for a dual-fuel, direct debit customer with typical consumption. It helps to explain the relationship between the level of the cap we set, and the different cost factors that influence it each time we update it.

The default tariff cap is effective from 1 January 2019. It has different levels set to reflect how you pay, where you live and the type of energy meter you have. For a detailed breakdown of the set cap prices by payment method, meter type and region, please see our industry page. Customers should contact their supplier for details specific to their tariff.

The default tariff price cap limits how much a supplier can charge customers on default tariffs, including standard variable tariffs, per unit of energy. It doesn’t cap the total cost of a bill. That’s because the amount customers pay also depends on how much gas or electricity they’ve used. Suppliers can charge less than the set level of the cap, but not more.

We update this chart to reflect the levels of the cap that come into effect in April and October.

As of April 2020, all the costs shown in this chart are calculated using the latest Typical Domestic Consumption Values (TDCV) that entered into effect from 1st April 2020 (see more methodology section for more details).

In practical terms, this means that previous publications on the level and costs of the cap will not be exactly the same.

Click the ‘more information’ tab above for a summary of the latest trends, details of how to interpret the component costs and allowances, and for information on our methodology.

Policy Areas:

  • Domestic consumers
  • Electricity - retail markets
  • Gas - retail markets

Data Table

Breakdown of the default tariff price cap (GBP £)
Wholesale costsAdjustment allowanceNetwork costsPolicy costsOperating costsEarnings Before Interest & Taxes (EBIT)VATPayment method uplift allowanceHeadroom allowance
2018/19 winter434025013019520531112
2019 summer505026214420122581213
2019/20 winter432026414620320541212
2020 summer395026516020920541212
2020/21 winter3071526516220319501111

More information

At-a-glance summary

  • The level of the tariff cap is based on the underlying costs required to supply energy. It applies from 1 January 2019.
  • We publish the level of the price cap in February and August to apply on 1 April and 1 October respectively each year.
  • The tariff level will reflect changes in the costs to supply energy. We determine how much each independent component of the cap should change by looking at external cost data. Details of the latest update can be found here - Default tariff cap: 1st October 2020 to 31st March 2021.

Relevance and further information

This chart summarises the different costs that make up the default tariff price cap.

We update the level of the cap every six months, either reflecting changes in underlying costs, or increases in inflation. Our calculations cover:

  • wholesale energy costs: how much a supplier has to pay to get the gas and electricity to supply households with energy (we base this on forward prices for energy to be delivered over a 12-month period)
  • adjustment allowance: an allowance covering any adjustments to the default tariff cap. For cap period five this includes the wholesale adjustment reflecting our reassessment of the wholesale allowance in the first default tariff cap period (adjustment only applies to the six-month winter 20/21 cap period).
  • network costs: the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country to households
  • policy costs: the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy
  • operating costs: the costs incurred by suppliers to deliver billing and metering services, including smart metering
  • payment method uplift allowance: the additional costs incurred by suppliers to bill customers with different payment methods
  • headroom allowance: this allows suppliers to manage uncertainty in their costs, and also offer competitive deals beneath the set level of the cap.
  • Earnings Before Interest and Taxes (EBIT): a fair rate of return allowed for suppliers, to ensure they can finance their businesses.
  • VAT: 5% tax added to the level of the tariff.

Methodology

  • The level of the cap is based on calculations of the costs required for an efficient supplier to provide energy. It also includes some additional allowances to manage uncertainty, and ensure suppliers can finance their activities, amongst other things.
  • We calculate the bill values associated with the different tariff types using a ‘typical domestic consumer’ with ‘medium’ energy use. Since April 2020, typical consumption values for a medium consumer are 12,000kWh/year for gas and 2,900kWh/year for electricity (profile class 1). Find out more at Typical domestic consumption values.
  • All prices shown are for a dual fuel customer paying by direct debit (i.e. where a customer takes gas and electricity from the same supplier). 
  • Further details of the methodology for calculating the level of the Default Tariff can be found in our statutory consultation on the default tariff cap and decision documents.
  • For a detailed breakdown of the cap by meter type and region, please see our page for the latest level for 1st October 2020 to 31st March 2021.
Date correct
October 2020
Policy areas