Ofgem proposed on Monday basing the price cap’s Contracts for Difference allowance on one quarter’s forecast payments, with new government funding to offset the Business Industrial Competitiveness Scheme.
The regulator is seeking views on two technical changes to the allowance, which covers the cost of the government’s Contracts for Difference (CfD) scheme within the cap.
The first would replace the current annualised approach, which rests on four quarters of forecast CfD payments, with an allowance reflecting only the upcoming quarter’s forecast payments.
The second would build new government funding into the allowance, to mitigate the impact of the Business Industrial Competitiveness Scheme (BICS) on domestic consumers.
If the changes are agreed, Ofgem said it aims to introduce the BICS adjustment in the April to June 2027 price cap period. It would aim to simplify the allowance as soon as the necessary arrangements are in place.
The consultation paper says Ofgem does not see a systematic reason why the simplified allowance would be consistently higher or lower than the current one. It sets out two technical changes to the CfD price cap allowance.
The price cap is the maximum a supplier can charge for a unit of energy and the standing charge together. It does not limit the total bill, which rises with the energy used.
Ofgem sets the cap every three months. It protects customers on standard variable tariffs, but not those on fixed tariffs, business contracts, heat networks or heating oil, according to the regulator’s price cap guide.
The proposals build on a July 2026 consultation, which asked for views on moving to a quarterly basis. Five suppliers and one industry group backed simplification in response, while views on the length of the recovery period were mixed.
Two suppliers also pointed to the interaction between a simplified allowance and the observation window the Low Carbon Contracts Company uses for forecast CfD payments. That company recovers CfD costs from suppliers using a forecast of payments.
The July consultation also proposed a volume reconciliation, to account for differences between forecast and actual CfD generation, to be implemented from April 2027. Responses to it closed on 10 September 2026 and it is awaiting a decision.
The reconciliation would not include any adjustment for price risk.
Ofgem would like views from those with an interest in how it sets the additional wholesale allowances in the cap. That includes energy suppliers, industry bodies, consumer groups and charities.
Responses can be sent to Ofgem’s price protection policy team by email by 20 November 2026.