Ofgem price cap explained
The energy price cap is one of the most talked-about numbers in UK energy, and one of the most misunderstood. It does not cap your bill. It does not guarantee you a specific annual cost. What it does is set a maximum rate that suppliers can charge per unit of energy and per day of standing charge on their default tariff.
For Q1 2026 (January to March), the cap is set at £1,758 per year for a typical dual-fuel household paying by direct debit. That works out to average capped rates of 27.7p/kWh for electricity and 5.9p/kWh for gas, with standing charges of 54.7p/day for electricity and 35.1p/day for gas.
What the price cap actually is
Ofgem, the energy regulator, sets maximum unit rates for electricity and gas, and maximum daily standing charges. These apply to the standard variable tariff (also called the default or “out of contract” tariff) that customers end up on if they don’t actively choose something else.
The cap is reviewed and updated every quarter: January, April, July and October. Ofgem calculates it based on wholesale energy costs, network charges, policy costs, supplier margins and other factors. When wholesale prices rise, the cap rises. When they fall, it falls.
The “typical household” figure
Every time the cap is updated, the news reports a headline figure like “energy price cap set at £1,758 per year”. This number assumes a “typical” dual-fuel household that uses 2,700 kWh of electricity and 11,500 kWh of gas annually, paying by monthly direct debit.
If you use more than that, your bill will be higher than the headline figure. If you use less, it will be lower. The cap limits the rate per kWh and per day, not the total you can be charged. A household that uses 20,000 kWh of gas will pay substantially more than one that uses 8,000, even though both are on the capped tariff.
This is the biggest misconception. When people say “my bill is higher than the price cap”, they usually mean their bill is higher than the headline figure. That doesn’t mean their supplier is overcharging. It means they use more than the assumed average.
How Octopus relates to the cap
Octopus’s Flexible tariff is their standard variable tariff. Its rates are typically set at or slightly below the Ofgem cap. When the cap changes, Flexible rates change with it.
The smart tariffs work differently:
Agile has no connection to the cap in its pricing structure. Rates move with the wholesale market every half hour. Some slots will be above the cap equivalent, others well below. Agile does have its own separate cap of 100p/kWh to protect against extreme spikes. Overall, most Agile customers who shift usage to cheap periods pay less than the Ofgem cap rate on average.
Tracker follows a daily wholesale rate plus a fixed margin. Some days it’s above the cap equivalent, some days below. Over a quarter, it often works out cheaper than the cap, especially in periods of falling wholesale prices.
Go and Intelligent Go have two rates: a cheap overnight rate (well below cap) and a daytime rate (at or slightly above cap). Overall cost depends on how much usage you shift overnight. Most EV owners save money compared to the cap.
Cosy has three rate tiers, with cheaper off-peak periods timed around heat pump efficiency. The blended cost for a typical heat pump household is generally below the cap equivalent.
Flux is designed for solar and battery homes. The import rates and export payments combine to produce a net cost that’s usually well below cap for homes generating their own electricity.
Historical context
The price cap was introduced in January 2019, set at £1,137 per year for a typical household. For the first few years it was relatively stable, moving up and down gently in response to moderate wholesale price changes.
Then came 2022. The global energy crisis, triggered by the war in Ukraine and post-pandemic demand surges, sent wholesale gas prices to extraordinary levels. The cap spiked from £1,277 in April 2022 to £2,500 in October 2022 (after government intervention; the actual calculated cap was over £3,500). The government’s Energy Price Guarantee limited bills to £2,500 for several months.
Since that peak, prices have come down considerably. Through 2024, the cap fell from £1,928 in Q1 to £1,568 by Q3, before rising slightly to £1,717 in Q4. In 2025, it fluctuated between £1,738 (Q1) and £1,849 (Q2), then settled at £1,720 (Q3) and £1,755 (Q4). The Q1 2026 level of £1,758 represents broad stability. While the cap remains higher than the sub-£1,200 figures of 2019-2021, it has clearly moved past the worst of the crisis.
Why the cap matters for tariff choice
The cap gives you a useful benchmark. For a breakdown of how each Octopus tariff works, see our understanding tariffs guide. If a smart tariff saves you 15% compared to the Flexible (capped) rate, you know roughly what that means in pounds. It also provides a safety net: if you’re on a smart tariff and your usage patterns don’t suit it, you can always fall back to Flexible and know you’re paying no more than the capped rate.
When comparing tariffs, think of the cap as the “do nothing” baseline. It’s what you’d pay if you made no active choices at all. Every smart tariff is a bet that your behaviour and circumstances will produce a lower cost than that baseline.
Quarterly changes and what to watch
The cap changes every three months, which means energy prices are not fixed even on the standard tariff. Keep in mind that cap levels also vary by electricity region. Each quarter, check the new cap figures and compare them to what you’re paying on your current tariff. If the cap falls significantly and you’re on a fixed deal above the new cap, it might be time to switch.
The next cap change takes effect on 1 April 2026. Forecasts from Cornwall Insight suggest a drop to around £1,620 to £1,641, driven partly by softening wholesale prices and the removal of certain policy costs. Ofgem typically announces the new level about two months in advance, so the Q2 2026 figure should be confirmed by late February 2026.
Octopus typically updates its Flexible rates within a day or two of a new cap coming into effect. You’ll get an email notification of the rate change about a month before it happens.