A Method of Setting Electricity Price Cap in Accordance with Coal Price

China's power sector is undergoing the market-oriented reforms, and the exercise of market power by generation companies has become a problem in some regions. Price cap is one effective way to suppress it. In this article a method is proposed to adjust the price cap according to the current coal price, which helps the electricity market adapt to potential price volatility in the coal market. Numerical tests are performed, and the method proves effective in producing a reasonable price cap. The test results also help better understand how much the coal price should influence the electricity price, which can serve as a reference to policy makers.