Ofgem published proposals on Monday 2 November 2026 to change how the household energy price cap counts the cost of one of the government’s green energy schemes. This isn’t a new cap level. A price cap change usually means a new price: Ofgem sets the level every three months, and forecasters such as Cornwall Insight publish projections before each announcement. This one changes the method behind the cap instead. It covers household bills, Ofgem wants views by 20 November 2026, and the next new cap level is due on 25 November.
What is the scheme Ofgem is talking about?
The price cap limits what households on standard variable and default tariffs pay, and it’s built up from a list of costs. One of them is an allowance for the Contracts for Difference (CfD) scheme, the government’s main way of supporting low carbon electricity like offshore wind.
Think of a CfD as a fixed-price deal for a wind farm. If wholesale prices are below the agreed price, the scheme tops the generator up. When wholesale prices are high, the generator needs less topping up, and Ofgem notes that’s exactly what happened this year: wholesale prices rose significantly, so forecast CfD payments fell. Suppliers pay for the scheme through a levy, and the cap includes an allowance so they can recover it from their customers.
Change one: counting the cost quarter by quarter
At the moment, the CfD allowance is worked out from a weighted average of forecast payments over four quarters, a full year ahead. It’s a bit like setting your monthly budget for the whole year from a guess made in January. Ofgem wants to base each quarter’s allowance on the forecast for that quarter only, and recover it over the same three months.
Ofgem’s own figures show why. The year-ahead method was thrown off this year by a high forecast for winter 2026/27 made before wholesale prices rose. Looking back, the quarter-by-quarter method would have come out lower in 4 of the last 5 winter quarters. For the current October to December 2026 cap, Ofgem’s table puts the CfD allowance at £17.14 per customer per year under today’s method and £14.60 under the simpler one.
Ofgem says that, outside gas crises, both methods collect broadly the same over time. The main difference is timing, and the simpler method could make the overall cap less volatile, because when wholesale prices go up, CfD costs tend to come down.
The earliest start would be the April to June 2027 cap. Ofgem first wants to hear from suppliers about how it fits with the way the Low Carbon Contracts Company sets its CfD forecasts.
Change two: the BICS offset
The British Industrial Competitiveness Scheme (BICS) lets eligible energy-intensive manufacturers off some electricity policy costs: the Renewables Obligation, the Feed-in Tariff scheme and the Capacity Market.
Here’s the catch. If part of the flock is let off, the rest would normally carry the extra load, households included. To stop that, the government plans to put money in through the CfD levy, known as the “BICS offset”. Ofgem wants to take the forecast offset for each quarter off the CfD allowance so households on default tariffs actually get the benefit. It would start with the April to June 2027 cap, if agreed. Ofgem hasn’t said how much the offset will be worth.
Our take: a tighter fit to real costs
Ofgem calls these technical changes, and it doesn’t say why beyond the detail above. Our take is that the cap is being tightened so it tracks real costs more closely. The evidence points that way:
- A closer match: Ofgem says the quarter-by-quarter method “may provide a more accurate reflection of expected CfD costs”.
- A growing scheme: Ofgem expects the CfD scheme to “grow materially over the coming years”, which makes getting the cost right matter more.
- Checking the sums: This follows Ofgem’s July 2026 proposal for a volume reconciliation, which squares up what’s collected with what’s actually used. Ofgem also says it will monitor whether suppliers’ costs match the BICS offset in the cap.
What does this mean for your business?
The price cap doesn’t cover business energy contracts. But anything that changes how household prices are structured, set or forecast has a knock-on effect on the business market, and it’s worth knowing about. The same scheme costs that Ofgem is counting more tightly sit behind the electricity prices that suppliers offer businesses, and BICS shows government money moving around to stop policy costs piling up on one group of bill payers.
The cap is also a useful reference point when you’re looking at business prices. Right now, from 1 October to 31 December 2026, the cap for a household paying by Direct Debit averages 26.32p per kWh for electricity with a 54.83p daily standing charge, and 7.97p per kWh for gas with a 29.68p daily standing charge. Cornwall Insight forecast in September that the cap would rise by 16% in January, and Ofgem announces the actual level on 25 November.
Your business rates are set in your contract, not by Ofgem every three months. That’s why we always advise arranging your next contract as early as possible, normally 12 months before your renewal date, so you can take advantage of forward pricing rather than the short-notice prices on offer when a renewal is left to the last month or two. We compare prices from suitable suppliers and present the options that best suit your business.
Talk to our energy experts
Wondering how your rates compare with the cap, or whether BICS could apply to your business? Book an appointment with our Energy Team, get a quote, or call us on 01273 914000. You’ll get straightforward advice from energy experts who are outstanding in their field.