Ofgem price cap prediction

About this report

How it works

Ofgem prices the cap on every trading day of a three month window that closes six weeks before the period starts. On each of those days it prices the four quarters that follow the cap start and weights them by how much a home uses in each. The index is lifted for shaping, rehedging, imbalance and a risk margin, then for network losses, and multiplied by typical use of 2,500 kWh elec and 9,500 kWh gas. Where the cap quarter is dearer than the year ahead, that backwardation is a real hedging cost and is added back. Everything else is held at the latest announced values, with debt cost, EBIT, headroom, VAT and levelisation on top.

Assumptions

Demand weights for the open period rotate the latest published set until Ofgem’s Annex 2 v1.31 lands; the most recent published period uses Ofgem’s published set for that period. The elec index carries a 1.0275 basis factor because our curve is baseload only while Ofgem prices a 70/30 baseload and peak blend, and gas carries 0.9965. Both are re-checked each quarter. CfD and Capacity Market allowances are held at their latest published values, and levelisation comes from Annex 9.

Sources

Ofgem, Energy price cap: default tariff levels, the page that carries the default tariff cap level model v1.31, which sets the allowances and the order they are applied in, and Annex 2, Wholesale cost allowance methodology v1.30, which sets the window, the hedge and the uplifts. Unit rates and standing charges as announced are on Ofgem, Energy price cap.