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Electricity and gas prices are set by a chain of costs rather than by one number. Wholesale markets respond to fuel costs, available supply, weather and demand; suppliers then add network, balancing, policy, operating and tax costs before charging a unit rate and, usually, a daily standing charge. Your bill also depends on how much energy you use, your tariff, meter and payment arrangement.
Gas can raise electricity prices because the most expensive generator needed at a particular time can set the wholesale electricity price. In Great Britain, gas has often been that marginal generator even when renewable or nuclear plants produce much of the electricity. A fall in wholesale prices therefore may not immediately reduce a household bill, while a cold spell, a contract renewal or a higher standing charge can increase it.
How wholesale energy markets set the starting price
Suppliers buy electricity and gas in wholesale markets, where prices change as buyers and sellers assess expected demand and available supply. A price reflects the cost of obtaining energy at a particular time, not simply the average cost of producing it over a year.
Supply, demand and fuel availability
Prices tend to rise when demand is high and fewer units of generation or gas are available. Cold weather can increase gas use for heating; heatwaves can increase electricity demand for cooling; and cold spells can increase electricity demand where homes use electric heating. Disruptions to fuel production, storage or import routes can also tighten supply. When demand falls or plentiful generation is available, wholesale prices can ease.
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Weather affects supply as well as demand. Wind speed changes wind generation, rainfall affects hydroelectric output, and sunshine changes solar production. The effect depends on the local generation mix, interconnections and storage. A windy period can reduce the need for higher-cost generators, while a calm, cold period can increase it.
Why gas can set an electricity price
Many electricity markets use marginal pricing. Generators are ordered from lower to higher operating cost, and enough are dispatched to meet demand. The most expensive generator required for that interval sets the wholesale price paid for the electricity traded at that time. This does not mean every generator has the same production cost; it means the market price is linked to the last unit needed.
In Great Britain, gas generation has often been needed at the margin, so changes in gas prices can affect wholesale electricity prices even when gas is not producing most of the electricity. Ofgem reports that renewables supplied 44% of Great Britain’s electricity generation in 2025. More renewable generation and storage could reduce how often gas is marginal. Ofgem, relaying National Energy System Operator modelling, estimates that gas could set the price 30% of the time by 2030. That is a forecast, not a guaranteed future share.
Wholesale costs are only one part of a bill
Ofgem’s 2026 explainer describes wholesale energy costs as “around 40% of your energy bill.” The word “around” matters: the proportion changes with market conditions, tariff design and which bill components are counted. A supplier’s wholesale purchase may also be hedged, meaning it bought some energy in advance at an earlier price.
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How a wholesale change reaches a household bill
There is no universal delay or pass-through rule. The route usually involves these stages:
- Procurement: A supplier buys energy in advance, close to delivery, or through a mixture of contracts. Hedging can protect customers from a sudden spike, but it can also delay the benefit of a fall.
- Wholesale settlement: The supplier pays for the energy delivered under the relevant market rules, including any balancing or related charges.
- Network delivery: Transmission and distribution companies recover the cost of maintaining and upgrading wires and pipes.
- Retail pricing: The supplier sets a unit rate, standing charge and contract terms. It also recovers operating, debt, industry and policy costs, plus any allowed or actual margin.
- Taxes and levies: Government taxes and energy-policy charges are added according to the jurisdiction and tariff.
Fixed contracts can keep a unit rate unchanged for the agreed period, subject to the contract’s terms. Variable or regulated tariffs can be reviewed when wholesale, network, policy or tax costs change. A market decline therefore does not guarantee an immediate decline in your direct debit.
What an electricity or gas bill contains
Most bills separate the amount of energy used from charges that apply regardless of daily consumption. The exact labels and proportions differ by country and tariff, but the following categories explain the main building blocks.
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| Bill component | What it pays for | How it can affect you |
|---|---|---|
| Wholesale energy | Electricity or gas purchased by the supplier | Moves with fuel markets, supply, demand and the supplier’s purchasing strategy |
| Network charges | Transmission and distribution wires, pipes, maintenance and upgrades | Can change independently of wholesale prices and may appear in unit rates, standing charges or both |
| Balancing costs | Actions that keep electricity supply and demand aligned and manage constraints | Vary with system conditions and are recovered through retail charges |
| Supplier, debt and industry costs | Billing, staffing, customer service, bad-debt costs and industry obligations | Depend on supplier costs and regulatory arrangements |
| Policy costs | Programs supporting low-carbon generation, efficiency or vulnerable households | Can change after government or regulatory decisions |
| Taxes and levies | Government-imposed charges | Depend on national and regional rules |
| Unit rate | Price for each kilowatt-hour or other metered unit | Rises with consumption; the rate may differ by time of day on a multi-rate tariff |
| Standing charge | Daily fixed charge for maintaining supply and account services | Accrues even on a day when no energy is used |
Ofgem distinguishes fixed, standard variable and multi-rate tariffs. A bill can therefore change because the price per unit changed, because the standing charge changed, because you used more units, or because several of these occurred together.
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A dated Great Britain electricity example
The House of Commons Library’s summary of Ofgem’s Q2 2026 price cap provides a tightly defined illustration. It concerns Great Britain (England, Scotland and Wales), an eligible standard variable tariff, a direct-debit customer and typical annual electricity consumption of 2,700 kWh. The average annual bill in that illustration was £875.
| Q2 2026 Great Britain electricity cap illustration | Amount | Share shown in the briefing |
|---|---|---|
| Average annual bill for typical direct-debit use | £875 | Overall illustration |
| Wholesale costs | £333 | 38% |
| Network infrastructure charges | £214 | 23% |
| Balancing costs | £42 | 5% |
| Policy costs | £78 | 9% |
| Operating, debt and industry costs | £141 | 16% |
The listed components do not by themselves add to the whole bill because other components also apply. These figures are not a current universal split, are not a gas-bill breakdown and do not describe Northern Ireland, which has a separate electricity market. The Great Britain price cap is not a cap on every tariff.
What the international figures do—and do not—tell you
European Union
The European Commission reports that the cost of electricity itself averaged nearly 49% of EU electricity bills in 2024. This is a Europe-wide historical average, not a forecast for an individual household or a fixed share in every member state. Taxes, levies, network charges and national energy choices differ between countries, so two homes using the same number of kilowatt-hours can receive very different bills.
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The U.S. Energy Information Administration reports preliminary 2025 average retail electricity prices of 13.63 cents per kilowatt-hour across all customer types and 17.30 cents per kilowatt-hour for residential customers. The figures come from Electric Power Monthly, Table 5.3, February 2026, and are preliminary. They are averages, not a guaranteed household tariff, and should not be compared directly with a British or EU figure without matching units, taxes, customer type and time period.
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Why your bill can rise when wholesale prices do not
- More consumption: A colder month, a larger household or greater use of heating, hot water or cooling increases the usage-based portion.
- Standing-charge changes: A daily charge continues whether the meter records use or not, so reducing consumption cannot remove it.
- Tariff review or renewal: A fixed contract may end, or a variable tariff may be repriced, exposing you to a different rate.
- Supplier purchasing lag: Hedged energy bought earlier can keep retail prices high after spot prices fall, or delay an increase after wholesale prices rise.
- Network, policy or tax changes: These costs can increase independently of fuel markets.
- Meter or payment changes: A corrected reading, estimated bills, a change from direct debit to another payment method, or a different time-of-use schedule can alter the amount due.
How to read your own bill
Use the bill’s detailed tariff section rather than judging the total alone. Check these items in order:
- Tariff type and contract dates: Identify whether it is fixed, standard variable or multi-rate, and note the start and end dates.
- Unit rates: Record each electricity or gas rate and, for a multi-rate tariff, the times to which each rate applies.
- Standing charge: Note the amount per day and the number of days billed.
- Meter readings: Compare actual readings with estimates and check the previous and current dates.
- Consumption: Compare kilowatt-hours with the same period last year, adjusting for weather and occupancy.
- Payment arrangement: Check whether the bill assumes direct debit, a prepayment meter or another method; payment terms can affect the quoted rate.
- Taxes and adjustments: Look for tax, levy, credit, debt-recovery or correction lines that explain a one-off difference.
A simple calculation is: (units used × unit rate) + (days × standing charge) + applicable taxes and adjustments. It will not reproduce every supplier’s statement exactly, but it separates usage from fixed and other charges and helps identify the source of a change.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to compare tariffs without misleading yourself
Compare offers using identical assumptions. Use your region, expected annual consumption, meter type, payment method, contract length and the level of price certainty you want. Compare both unit rates and standing charges; a lower unit rate can be offset by a higher daily charge, especially for a low-use home.
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A fixed tariff trades certainty for less ability to benefit quickly from falling prices. A variable tariff can respond sooner to market or regulatory changes but exposes you to increases. A time-of-use tariff can reward shifting consumption to cheaper periods, but only if your meter, routine and local tariff support those periods. Ofgem advises checking whether you can switch tariff or supplier and choosing an arrangement that suits your needs; switching is not guaranteed to save money.
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What lower consumption can and cannot do
Using fewer units normally reduces the usage-based part of a bill. It does not remove a standing charge, and some network, policy or tax costs may remain in the unit rate or fixed charge. The size of the saving therefore depends on the tariff’s mix of variable and fixed costs.
- Start with the consumption figure on the bill and verify the meter reading before changing habits.
- Focus on the periods and services that account for your actual use, such as space heating, hot water or cooling.
- If you have multi-rate pricing, check whether shifting flexible use changes the billed rate under your specific schedule.
- Recheck the bill after a full billing period; a single estimated or unusually cold period can distort the comparison.
Geography, dates and limits on comparisons
There is no single worldwide household-bill formula. Great Britain’s price-cap example excludes Northern Ireland; EU member states apply different taxes, levies and network arrangements; and U.S. averages cover customer groups and units that are not interchangeable with European tariffs. Price-cap figures, bill shares and average prices age quickly. For a current decision, use the latest tariff, regulator notice and supplier statement for your location, then apply the bill-reading checks above.
The practical answer is to separate three questions: how much energy the home used, what price the tariff charged for each unit and day, and which non-energy costs changed. Wholesale markets explain the starting pressure, but the final household bill is the result of all three layers plus the contract and payment terms.
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