What Makes Up a UK Energy Bill

A domestic energy bill is not one price but a stack of separate costs, and most of them have nothing to do with how much gas or electricity a home actually burns. Ofgem sets out the components: wholesale costs, which is what a supplier pays to buy the energy; network costs to build, fix and repair the pipes and wires that move it; operating, debt and industry costs; the supplier's earnings before interest and tax; policy costs such as government social and environmental schemes; and VAT at 5 per cent¹. On top of those, what a household pays also depends on the type of energy used, the type of meter installed and how the bill is paid².

The single biggest slice is the wholesale cost of the energy itself, which Ofgem's own review of the default tariff cap describes as the largest portion of a customer's bill⁴. Network charges come next, making up almost 30 per cent of the price cap total⁵. Policy costs, the government levies that fund environmental and social schemes, account for 11 per cent of a typical household's total energy bill⁶. For a typical household paying by Direct Debit, the whole stack came to £1,755 a year for October to December 2025⁷.

Wholesale costs: the price of the energy itself

Wholesale costs are what a supplier pays to buy energy on the open market before a single unit reaches a home². They are the largest portion of a customer's bill, which means the wholesale market, not the supplier's own pricing, is what drives most of the movement in bills from quarter to quarter⁴.

The scale of that influence is visible in the years since the energy crisis. Rapid increases in wholesale energy prices from mid-2021 onwards led to a 54 per cent increase in the price cap in April 2022⁹, and the October to December 2022 cap reached £3,371⁹. A House of Lords analysis of the rise in bills since pre-crisis levels found that 54 per cent of the increase was due to higher wholesale prices, compared with 20 per cent from network charges and 6 per cent from green levies¹⁰. In other words, the crisis-era surge in bills was overwhelmingly a wholesale story, and the other components moved far less.

For a household, this is the part of the bill over which no supplier has lasting control. Suppliers buy energy ahead of time to smooth the price, but when wholesale markets rise, that cost eventually flows into unit rates, and when they fall, it flows back down. The practical consequence is that a bill is exposed to international gas and electricity markets every day, even on a capped tariff. More detail on how wholesale prices move bills is on our page about wholesale gas and electricity prices.

Charges for using the grid: nearly 30% of your bill

Network costs pay to build, fix and repair the pipes and wires that move energy around the country³. In the price cap they make up almost 30 per cent of the total⁵, which makes them the second largest component after wholesale costs.

Nesta's breakdown of what is in an energy bill puts the current share slightly lower, at 24 per cent of an electricity bill and 22 per cent of a gas bill, rising to 23 per cent for each from January 2026¹¹. The difference between that figure and the "almost 30 per cent" in the Commons Library briefing reflects different periods and different ways of allocating costs across the cap, but both point to the same conclusion: roughly a quarter to nearly a third of what a household pays goes to the physical network, regardless of how much energy is used.

Network costs are made up of three charges: transmission charges for moving energy at high voltage and pressure across the country, distribution charges for the local pipes and wires that reach homes, and balancing services charges for keeping the system stable moment to moment¹¹. These are regulated charges, set through the network companies' price controls rather than by suppliers, and they are largely recovered through standing charges. That is one reason a bill carries a fixed daily element even when no energy is used at all. Our page on standing charges covers what that daily fee pays for.

The extra cost of government schemes and levies

Policy costs are the government's social and environmental schemes, recovered through energy bills³. They currently raise £5.9 billion a year and account for 11 per cent of a typical household's total energy bill⁶. The burden falls very unevenly between fuels: policy costs account for 16 per cent of a typical electricity bill but only 5.5 per cent of a typical gas bill⁶.

Nesta's figures for October to December 2024 put numbers on that split. Policy costs made up 16 per cent of the £884 electricity bill and 6 per cent of the £833 gas bill for a typical household, adding about £140 to the annual electricity bill and £50 to the gas bill¹². The revenue is similarly lopsided: 82 per cent of the money raised from domestic levies comes from electricity bills and only 18 per cent from gas bills¹².

One small but visible levy is the Green Gas Levy, which funds biomethane production and is collected through the gas standing charge. It raises around £9 million a year from households and currently adds about £0.38 a year to a typical domestic gas bill¹². Ofgem's decision document on the levy forecast that gas customers could see annual bills rise by approximately £4.70 at the peak of the levy in 2028, assuming a transition to a volumetric charge¹³.

Policy costs are also the component the government can move directly. In April 2026 the government cut these costs by ending a levy-funded energy efficiency scheme and shifting the largest renewable generation support scheme to general taxation⁵. The Renewables Obligation is due to taper down as contracts with generators expire from 2027 onwards¹². The full list of schemes is on our page about policy costs and levies.

Running costs, supplier profit and unpaid debts

Between the wholesale energy and the network, a supplier has its own costs to cover: billing, customer service, metering and the industry systems that sit behind every account. Ofgem's bill breakdown lists these as operating, debt and industry costs, alongside the supplier's earnings before interest and tax, known as EBIT¹. The cap builds in an allowance for these costs plus headroom, and a levelisation allowance that makes sure prepayment and Direct Debit customers pay the same standing charge⁸.

How much of a bill ends up as profit is contested. End Fuel Poverty, citing Common Wealth analysis, reported that profits make up 24 per cent of an energy bill, with every family paying around £500 on the average energy bill just to fund those profits¹⁴. That figure covers profits across the supply chain, not just the retail supplier's margin, and it is an advocacy organisation's reading of company accounts rather than a regulator's calculation. Ofgem's own cap methodology allows suppliers a modest EBIT allowance within the capped rates¹.

Bad debt is the other cost in this section that has grown sharply. When customers cannot pay, the cost of that arrears is spread across everyone's bills through the cap's allowances. Ofgem has said it will be closely monitoring supplier compliance and will continue to take firm action against suppliers who fall short of their requirements¹⁵. For households, the practical point is that the "supplier margin" line on a bill is smaller than the profit share claimed in some analyses, but the operating and debt costs around it are real and are recovered from billpayers.

Unit rates and standing charges: the two numbers that matter

Every domestic bill in Great Britain uses one charging structure made up of a standing charge and the unit prices of gas and electricity¹⁶. The standing charge is a fixed daily fee; the unit rate is what is paid for each kilowatt-hour consumed. Everything above, the wholesale costs, the networks, the levies, the supplier's costs and VAT, is packed into those two numbers.

The two numbers move differently. Under the cap for 1 January to 31 March 2026, the electricity unit rate was 27.69p per kWh with a 54.75p daily standing charge¹⁷. Because the standing charge is fixed, a household that uses very little energy can still face a substantial bill, while a high-use household sees the unit rate dominate. Tariffs with no standing charge exist, but the unit rates on those tariffs are often higher per unit of energy used¹⁸.

The cap's benchmark tables show how the two numbers combine. For the Northern region in the 1 July to 30 September 2026 cap, the benchmark maximum was a £223.48 annual standing charge with an £824.03 annual bill at 2,500 kWh on a single-rate meter, and a £220.70 standing charge with a £986.44 annual bill at 3,400 kWh on a multi-rate meter¹⁹. The same structure applies across all 14 regions, with different rates in each. Our pages on reading an energy bill and why the standing charge is so high go further into these two numbers.

Tax on your bill: 5% VAT and other charges

Domestic energy bills carry VAT at 5 per cent, a reduced rate that applies to gas and electricity for home use¹. Businesses pay the full 20 per cent²⁰. The 5 per cent rate is built into the price cap: Ofgem's cost stack for the cap includes VAT at 5 per cent on gas for the 1 October 2026 to 31 March 2027 period⁸.

VAT also touches the things a household installs to cut its energy use. Certain energy-saving products installed in a home attract either 5 per cent or 0 per cent VAT, and in Northern Ireland a specific rule applies: if the cost of the products, not including VAT, is 60 per cent or less of the total cost of the installation, not including VAT, the reduced rate applies to everything²¹. The zero rate on energy-saving materials is set to remain in effect until 31 March 2027, after which installations are scheduled to revert to the 5 per cent reduced rate.

For most households the VAT line is the smallest slice of the bill, but it is a tax the household cannot avoid while connected to a supplier. Unlike the wholesale and network costs, it is a fixed percentage, so it rises and falls with everything beneath it.

What the price cap covers and where it falls short

The price cap sets maximum prices for a unit of energy and daily standing charges, with separate caps for gas and electricity, for customers in each energy supply region of Great Britain⁵. It came into force at the beginning of 2019⁵ and was introduced across all payment types in January 2019⁹. It applies where a customer has not signed up for a fixed-term contract with their supplier⁵.

What it does not do is cap the total. As Ofgem states plainly:

The cap protects people on standard variable tariffs, where the unit rate can go up or down depending on the energy market⁸. Fixed tariffs, business energy contracts, heat networks and heating oil sit outside it⁸. A household on a capped tariff that doubles its usage roughly doubles its bill; the cap limits the price per unit, not the number of units. Our page on why a bill can be higher than the cap figure explains the common causes.

Reasons your energy bill is not the same next door

Even under the same cap, two identical houses can pay different amounts. Ofgem lists the factors: the type of energy used, the type of meter installed and how the bill is paid, for example by Direct Debit². Bills also vary by how a home is heated, for example with heating oil or a heat network¹.

The payment method gap is built into the cap itself. For October to December 2025, the typical annual total was £1,755 for Direct Debit customers, £1,890 for standard credit customers and £1,707 for prepayment customers¹⁵. Region matters too: a separate price cap is set for each of the 14 regions and applies throughout the region, with no breakdown below regional level⁵. Our pages on price cap rates by payment method and unit rates by region set out the differences.

Consumption assumptions also shift the picture. Ofgem's typical domestic consumption values are 2,700 kWh of electricity and 11,500 kWh of gas for a medium household, with 3,900 kWh for multi-register meters¹⁵, while some cap figures assume 2,500 kWh of electricity and 9,500 kWh of gas⁹. A household that uses more than the benchmark pays more than the headline figure, and one that uses less pays less. Northern Ireland is a separate market entirely: the Ofgem price cap does not apply there, and figures for Northern Ireland are based on current local supplier tariffs²³. Energy Saving Trust's data for November 2025 showed Northern Ireland electricity at 30.8 pence per kWh on the standard rate, with Economy 7 off-peak at 16.7 pence and on-peak at 35 pence per kWh²³.

Setting and reviewing the cap every three months

Ofgem reviews and sets the cap every 3 months, fixing a level for how much a supplier can charge for each unit of energy and the daily standing charge²⁴. The cap was not always quarterly: Ofgem's original leaflet described working out supplier costs every six months²⁵, and the shift to quarterly reviews came in August 2022, when Ofgem announced it would update the cap every quarter rather than every six months²⁶.

Each review rebuilds the whole cost stack: wholesale costs, network costs, policy costs, operating costs, EBIT, headroom, the levelisation allowance and VAT at 5 per cent⁸. Because wholesale costs dominate, the quarterly movement in the cap mostly tracks the wholesale market. The cap rose 54 per cent in April 2022 as wholesale prices surged⁹, and by October 2023 annual bills for typical consumption under the cap were still almost £800, or 69 per cent, above their summer 2021 levels²⁷. More recently the movement has been smaller: a 2 per cent rise from October 2025⁷, a 7 per cent fall confirmed for 1 April to June 2026, and an expectation that the cap will stay roughly the same until the end of that year¹⁷.

For a household on a variable tariff, the quarterly review means the price of energy can change four times a year with no change of supplier or contract. Ofgem publishes the new levels ahead of each quarter, so the rates that will apply are known before they take effect²⁸. The history of every level since 2019 is on our page about price cap history and announcement dates.

The implications for your home's energy self sufficiency

The breakdown tells an uncomfortable truth about a standard energy bill: almost none of it is under a household's control. The wholesale cost tracks international markets, the network charges are set by regulated monopolies, the policy costs are set by government, the VAT is set by Treasury, and the supplier's operating costs and margin are set by the supplier. A household on a variable tariff is exposed to all of it, reviewed and repriced every three months.

What a household does control is the number of units. Because the cap limits the price per unit and not the total, every kilowatt-hour not used is money that never enters the stack at all: no wholesale premium, no network share, no levy, no VAT on top. That makes efficiency and reduced consumption the only lever that works on every component of the bill at once, a subject covered in detail on our page about reducing an energy bill.

The deeper dependence is structural. A home connected to the gas grid and the electricity network buys its energy from markets it cannot influence, through a supplier whose prices are capped but not fixed, with charges that arrive whether or not the energy is used. Some households can loosen that dependence, through insulation, a different heating arrangement or generating their own electricity, and the trade-offs between a bill and independence are set out on our page about energy bills and energy independence. For everyone else, the value of understanding the breakdown is simpler: knowing which parts of the bill move, and why, makes the quarterly cap announcements and the differences between neighbours' bills far easier to read.