Breakdown of the default tariff price cap (GBP £, prepayment)

Chart

Source: Ofgem analysis.

Information correct as of: October 2020

This chart shows a breakdown of the costs that make up the prepayment meter price cap level. The chart helps to explain the relationship between the prepayment meter price cap level we set, and the different cost factors that influence it each time we update it. Cost breakdowns do not add up exactly to the total cap levels due to rounding effect. We update this chart to reflect the prepayment price cap level that comes into effect in April and October each year.

The CMA Prepayment Meter Price Cap is displayed in the chart from when it came into force on 1 April 2017 until it expired on 31 December 2020.  In August 2020, Ofgem announced that the Default Tariff Cap would continue to protect default prepayment meter customers after the CMA Prepayment Meter Price Cap expires. For Winter 2020/21, the values of the CMA Prepayment Meter Price Cap and the new prepayment cap level within the Default Tariff Cap are the same. 

The prepayment meter price cap level within the Default Tariff Price Cap limits how much a supplier can charge prepayment meter 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.

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.

Note *: Following a change in methodology the values for 2019/20 winter onwards are not directly comparable to previous periods.

**: The change in methodology has made it possible to identify EBIT as a cost component distinct from the headroom allowance as in previous periods.

***: Following the expiry of the CMA Prepayment Meter Price Cap, the labelling of the cost components have been standardised in line with the Default Tariff Price Cap labelling to reflect the new prepayment meter price cap level within the Default Tariff Cap, however the levels are still comparable.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Breakdown of the default tariff price cap (GBP £, prepayment)
Wholesale costsAdjustment allowanceNetwork costsPolicy costsOperating costs***Prepayment payment method uplift allowance***EBIT**Headroom allowance VATTotal
2017 summer363250111165641811491031
2017/18 winter355251110167651811491025
2018 summer389251132174662011521094
2018/19 winter434250130175662012541143
2019 summer505262144182672213601256
2019/20 winter*432264146183682112561182
2020 summer*395265160187682112551164
2020/21 winter*307265162186681911511070

More information

At-a-glance summary

  • We update the prepayment price cap level on 1 April and 1 October each year. 
  • In August 2020, Ofgem announced that the Default Tariff Cap would continue to protect default prepayment meter customers after the CMA Prepayment Meter Price Cap expires at the end of 2020. 
  • The tariff level will reflect changes in the costs of supplying 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 - Prepayment meter cap level: 1st October 2020 to 31st March 2021.

Relevance and further information

This chart summarises the different costs that make up the prepayment meter price cap level. 

The Competition and Markets Authority introduced the price protection of a price cap to prepayment meter customers, who can’t easily access the cheapest tariffs, in April 2017. These customers are often in vulnerable circumstances. They designed the tariff based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity to certain groups of customers. This is due to expire on 31 December 2020.

In July 2019, the CMA revised the methodology to better reflect the costs incurred in delivering energy services to prepayment customers. From 1 October 2019, the prepayment meter price cap methodology aligns more closely with our methodology for the default tariff price cap.

In August 2020, Ofgem announced that the Default Tariff Cap would continue to protect default prepayment meter customers after the CMA Prepayment Meter Price Cap expires at the end of 2020.

The Default Tariff Cap for the period 1 October 2020 to 31 March 2021 includes a new prepayment meter price cap level, which will protect PPM customers with default tariffs once the CMA Prepayment Meter Price Cap expires on 31 December 2020.

We update the level of the cap every six months, either reflecting changes in underlying costs, or increases in inflation. Our calculations for the Default Tariff Cap 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
  • prepayment meter payment method uplift allowance: the additional costs incurred by suppliers to bill customers with prepayment meter as their payment method
  • 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 wholesale costs, network costs, policy costs, operating costs and costs specifically associated with prepayment meters. It also includes a degree of ‘headroom’, which is designed to allow suppliers to offer competitive deals underneath the level we set for the prepayment price cap.
  • 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 (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. Further details on the decision to include a new prepayment meter cap level within the Default Tariff Cap can be found in this decision document.
  • 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