The energy price cap, set by Ofgem, limits the maximum unit rates and standing charges that suppliers can charge households for gas and electricity. Updated quarterly, it reflects movements in wholesale prices of energy and the policy and system costs embedded in bills.

The price cap announced today – which will come into effect from April 2026 – is particularly significant because it brings together several policy decisions and non-commodity cost shifts at once. Price cap changes directly shape the economics and affordability of electric heating, acting as a price signal for consumers to make the switch from fossil fuel heating.

For those working in the clean heat sector, recent interventions in aspects of the price cap are a measure of the willingness from the UK government to create productive conditions for the ambitions set out in the Warm Homes Plan.

This price cap does not represent business as usual. It is the result of three key changes to energy bills coming together at once.

1. The UK government’s intervention on bills - In the Autumn Budget, the UK government committed to reducing average household energy bills by £150, by taking 75% of the Renewables Obligation (RO) off electricity bills and abolishing the Energy Company Obligation (ECO) levy from electricity and gas bills. That intervention now feeds directly into the price cap for the first time.
2. Rising network costs - The most significant non-budgetary driver of bill changes is network costs, which cover maintaining and upgrading of electricity and gas grids. April sees the start of the five-year RIIO-3 price control period, so costs are rising compared with the previous price cap period to fund major investment in grid expansion to support electrification and decarbonisation.
3. Technical changes to bill components - The UK government has also consulted on and implemented a range of other changes that impact energy bills, most notably the recovery mechanism for the Warm Home Discount scheme is moving from the standing charge to the unit rate.

Taken together, this price cap reflects both shorter-term political intervention and longer-term trends impacting energy bills - and the energy price cap, alongside the electricity-to-gas price ratio, is an important benchmark for progress on electrification of home heating.

Nesta analysis of the April price cap has shown that the changes outlined above have delivered the following impacts:

The Budget intervention materially reduced electricity costs

For the typical dual fuel household the price cap has fallen by £117, to £1,641. This is a result of the budget intervention and technical changes that have been made by the Department for Energy Security and Net Zero (DESNZ), including the Warm Homes Discount.

Our analysis comparing April’s price cap with and without UK government intervention shows that without the intervention in the Budget, electricity and gas bills would have been higher by £102 and £41, respectively, for a typical dual-fuel household.

Looking beyond a typical dual-fuel household at different types of consumers, heat pump households will experience greater than average savings, with this price cap bringing annual savings of £168. For households with high electricity consumption, such as those that rely on storage heaters, they could save up to £205 annually.

In all, this shows that a targeted fiscal intervention can shift the cap level in a meaningful way for consumers. For policymakers concerned about the cost of electricity or the running costs of heat pumps, this is a tangible positive, and has created headroom needed for energy consumers ahead of the wider increases in network costs that are anticipated in coming years.

There has been a reduction in the gas standing charge

Consumer groups have long called for reductions in the gas standing charge, and in its 2024 manifesto, the Labour Party committed to reducing these charges.

Our analysis shows that as a result of moving the Warm Homes Discount from the fixed standing charge to variable consumption-based charges, the gas standing charge has been reduced by 17%.

It should be noted that the electricity standing charge slightly increased, by 4.5%, due to a substantive increase in transmission costs from the RIIO-3 price control.

Positive progress is dampened by increasing but necessary non-commodity costs

However, these positive signals are somewhat offset by increases elsewhere on energy bills. Though the UK government sought to reduce electricity bills for an average dual fuel household by an average of £150, in reality the average dual fuel household will see an annual reduction of £132 (note, the average dual fuel household slightly differs from the typical dual fuel household statistic which Ofgem uses for price cap reporting).

The reason the full £150 average reduction has not carried through is due to increases in other policy and network costs on the bill. The main increases came from paying for the capacity market and the Contracts for Difference scheme, which grew by 77% and 19% respectively.

Transmission costs on the electricity standing charge also increased by 65%, as a result of the RIIO-3 price controls. This price cap has included RIIO-3 costs for upgrading electricity and gas transmission and gas distribution - but the cost of upgrading electricity distribution will not come into effect until April 2028. In the longer term, these network costs will therefore put even greater upward pressure on electricity charges.

The electricity-to-gas price ratio has reduced, but by less than was possible

The most significant development for home decarbonisation is the movement in the electricity-to-gas price ratio. The price ratio is crucial for the adoption of heat pumps and other clean heating, which are the centrepieces of the UK government’s recently published Warm Homes Plan.

It is positive that the price ratio has significantly reduced from the January price cap, from 4.7 to 4.3. Nesta’s analysis highlights three main factors shaping this reduction in the price ratio.

• Budget intervention: Our analysis shows that without the UK government’s budget changes, the price ratio would have remained at 4.7. The removal of 75% of the Renewables Obligation (RO) from electricity bills into general taxation and abolishing the ECO levy delivered substantial progress, reducing the cost of electricity compared to gas by 0.33 points.
• Reduction in policy costs on electricity bills: The January price cap accounted for the higher set up fees for the Nuclear Regulated Asset Base (nRAB), and a reduction in policy costs for this scheme was expected. Changes to Warm Home Discount mean cost recovery is now shared equally among gas and electricity customers, rather than by customer numbers as previously. This reduces the Warm Homes Discount burden on electricity and increases it on gas.
• Changes in how network costs are allocated across bills: Though overall network charges have risen, there have been changes in how they are allocated across variable and standing charges. Network cost variable charges have fallen slightly on electricity bills while rising significantly on gas bills. Electricity bills have seen increased standing charges due to network costs, while gas bills do not have a network cost standing charge.

However, the electricity-to-gas price ratio would have been reduced further, if not for a couple of key factors that have hampered this.

• Gas fuel costs reduced by more than electricity fuel costs: The wholesale gas price is expected to fall by about 12% but the wholesale electricity price only falls by 7%. This differential fall has meant the price ratio has fallen less than expected.
• Capacity market costs have placed a substantively increased burden on electricity bills: The cost of the capacity market has increased by about 77% from January, so the average consumer is paying more to maintain the capacity markets. As capacity market auctions are set four years in advance, we could be seeing an echo of the energy crisis here, with the cost of contracts bought in 2022 coming onto bills now.

Government action has demonstrably reduced electricity prices compared to the counterfactual. At a time of sustained cost-of-living pressure, short-term relief matters, and it shows that fiscal choices can materially shift the trajectory of bills.

It is also encouraging that the UK government’s actions in the budget have helped to reduce the cost of electricity in comparison to gas. However, electrification and heat pump uptake depends on long-term confidence: households, installers and manufacturers make decisions over years.

In the context of the Warm Homes Plan – which committed the UK government to delivering 450,000 heat pumps annually in 2030 – a stable signal is needed that electric heating will remain consistently cheaper to run than fossil fuel alternatives. This requires a long-term strategy to rebalance prices, reduce operating costs and enable households to realise the efficiency gains that electric heating can offer.

This latest price cap illustrates both the opportunity and challenge. Intervention can reduce electricity costs, but rising network and non-commodity costs risk eroding progress. And with the electricity-to-gas price ratio still higher than needed to encourage consumer electrification, the fundamental economic signal to switch remains weak.