Wholesale Gas and Electricity Prices and Why Bills Change

Energy bills are going up because the wholesale price of gas has gone up, and gas sets the price of both of the fuels a British home buys. National Grid puts it plainly: "The recent rise in energy bills is due to the rising cost of gas around the world."¹ That cost does not reach a household directly. Suppliers buy energy on wholesale markets, Ofgem converts those costs into maximum unit rates and standing charges, and the result is the price cap, which from 1 October 2026 rises by 4%, or £60, to £1,723 a year for a typical dual fuel household paying by direct debit, up from £1,663².

The £1,723 figure is not a maximum bill. It is what a home using a typical amount of gas and electricity would pay over a year at the capped rates. Use more, and the bill is higher; use less, and it is lower. The cap also moves only every three months, which is why a fall or rise in wholesale prices takes months to reach a bill, and why the cap has become the main lens through which households see the wholesale market at all.

Why gas drives both electricity and gas prices

The wholesale market is where the story of rising bills begins. Suppliers buy the gas and electricity they sell to households in advance, and those wholesale purchases are the largest single cost in a bill. When global gas prices rise, suppliers' costs rise, and Ofgem passes those costs into the cap at the next reset. The House of Lords Library's analysis of the rise in bills since before the energy crisis attributes 54% of the increase to higher wholesale prices, with network charges accounting for 20% and "green levies" 6%³.

The scale of the shock was extraordinary. Ofgem recorded "a record increase in global gas prices over the last six months, with wholesale prices quadrupling in the last year" ahead of its February 2022 methodology decision⁶. The House of Commons Public Accounts Committee reported that by December 2021, weekly average wholesale gas prices "had risen to nearly six-fold the level in February 2021", and noted that electricity prices are closely linked to them⁷.

That link matters for households with no gas connection at all. In Britain's wholesale electricity market, the price is set by the marginal generator, the last plant needed to meet demand, which is usually gas fired. When gas is expensive, every electricity generator is paid the gas driven price, so electricity inherits gas's volatility. The consequence at the retail end is stark: at the time of the Scottish Government's heat in buildings consultation, the retail price of electricity was "approximately four times more expensive than gas per kWh"⁸. A home heated by electricity therefore feels the gas price through its wiring.

Where the price cap stops and what stays unlimited

The price cap, set by Ofgem, "limits how much a supplier can charge for each unit of electricity and gas you use", as National Grid summarises it, adding that "the price cap is not the maximum amount your bill can be; it's the maximum amount you'll pay per unit of energy you use"¹. End Fuel Poverty makes the same point from the consumer side: "The price cap limits the unit cost of energy and standing charges which firms can charge, not the total bill."⁴

The cap exists to protect people on tariffs where the unit rate can go up or down with the market, which Ofgem calls standard variable tariffs⁹. It is a ceiling on the rates, not a promise about the total.

What the cap leaves open is therefore everything the rates multiply into:

• Consumption. A draughty home with high usage pays far more than the headline figure.
• Region. A home in a region with higher network costs pays higher rates than the national average.
• Tariff type. A household that fixes its rates steps outside the cap's protection altogether.
• Fuel type. A household heating with oil rather than gas is outside the cap on its heating fuel.
• The standing charge. The daily fee paid before a single unit is used has been rising even when unit rates fall.

The cap from 1 October 2026: set at £1,723

From 1 October 2026 the cap rises by 4%, taking the typical annual figure from £1,663 to £1,723 for a dual fuel household paying by direct debit². That continues a period in which the cap has been markedly higher than before the energy crisis. The National Audit Office noted the cap "limited the average annual household bill to £1,717 for October to December 2024, which is higher than pre-energy crisis levels"¹⁰. A year earlier, in October 2023, the cap fell to £1,923¹¹.

The route here has been violent in both directions:

The cap rose from £1,277 in October 2021 to £3,549 in October 2022, as the Chartered Institute of Plumbing and Heating Engineering records¹², including a 54% increase in April 2022¹⁵. Falls followed: 12% in April 2024¹⁶, though the July to September 2024 cap was still "almost 30% higher than in winter 2021/22"¹⁶. For October to December 2025 Ofgem announced a 2% rise, to £1,755 for a typical household, "2.2% per year higher than the price cap set for the same period last year", adding £2.93 a month or £35.14 a year to a typical bill⁹. In July 2026 the cap rose again, increasing the price of electricity by 6% per unit¹⁴, and bills increased by around 13.5% from 1 July 2026⁴.

The pattern for a household is that the cap now ratchets: sharp crisis era rises, partial falls, and then renewed upward pressure as wholesale gas prices climb again. Gas unit rates rose from 6.29p per kWh in winter 2025 to around 8p from 1 October 2026, up around 27% year on year⁴. Two independent readings of the October 2026 gas rate differ slightly, at 8p and 7.97p per kWh⁴; both describe the same capped rate, rounded differently.

What goes into a bill: standing charge and unit rate

Every domestic energy bill in the capped market uses one charging structure: a standing charge plus the unit prices of gas and electricity¹⁷. The standing charge is a fixed daily fee that applies whether or not any energy is used; the unit rate is what each kilowatt hour consumed costs. Ofgem's bill calculation guidance lists what feeds into these: wholesale costs, network costs, operating, debt and industry costs, policy costs, VAT, and adjustments for the type of energy, the type of meter and how the bill is paid¹⁷.

From 1 October 2026, the capped electricity unit rate is 26.32p per kWh and the electricity standing charge is 54.83p per day, a fall of 2.36p per day or 4.1% on the quarter; the gas standing charge is 29.68p per day, up 2.2%⁴. In the January to March 2026 cap the Welsh Government's guidance recorded gas at 5.93p per kWh with a 35.09p per day standing charge¹⁸, which shows how far gas unit rates have moved within a single year. Regional examples differ again: in the South Wales region, a single rate electricity tariff carried a cap rate of 26.33p per kWh with a 57.84p per day standing charge².

Standing charges have been the quiet riser. Ofgem announced that standing charges would "rise by 4% for electricity and 14% for gas" in the October to December 2025 cap¹³. Because the standing charge is paid regardless of use, it is the part of the bill that no amount of careful consumption avoids, which is why standing charges and their reform attract so much attention.

Direct debit households can also build up credit, paying "for more energy than you have used, for example because you pay a set amount by Direct Debit every month"¹⁹. That credit belongs to the household and can be reclaimed, but it means the monthly payment and the actual bill are not the same thing.

Why price cuts trail the market: quarterly resets and delay

The cap is reset on a fixed calendar. Ofgem moved from setting the cap every six months to every quarter "in summer 2022... in response to the high and volatile wholesale prices"²⁰. Before that, Ofgem adjusted the cap twice a year²¹. The cap itself dates from 1 January 2019, when Ofgem introduced the default tariff cap following the Domestic Gas and Electricity (Tariff Cap) Act⁵.

The quarterly cycle is why bills lag wholesale prices. Suppliers buy energy months ahead, so the cap reflects what energy cost when it was bought, not what it costs today. When wholesale prices fall, households wait for the next reset, and often the one after, before the relief lands. When prices rise, the same lag applies, which briefly shields households from spikes but stores up the increase.

The forward calendar is published. Ofgem's review for the January to March 2027 cap is due on 25 November 2026, with the new level taking effect on 1 January 2027⁵; reviews for the following quarters are due on 23 February 2027 and 26 May 2027⁵. Predictions for the period from 1 January 2027 already point to a further 12% rise in gas unit rates⁴, and one supplier comparison puts the average predicted cap for that quarter at £1,970 for a medium usage household paying by direct debit². A further market surge has pushed UK gas prices to a four year high, with the next cap period due to be announced in late November 2026²².

Fourteen regional caps, with Northern Ireland excluded

There is no single national cap. "A separate price cap is set for each of the 14 regions and applies throughout the region", with no breakdown below regional level²³. The regions reflect the different costs of transporting energy to different parts of Great Britain, so a household in one region can pay noticeably more than a household in another on an identical tariff and identical usage. End Fuel Poverty notes that "some regions, such as Merseyside and North Wales will pay substantially more than others, such as those in London"⁴.

The regional rates are published for each cap period, and the differences sit in both unit rates and standing charges. The South Wales example above, at 26.33p per kWh and 57.84p per day for single rate electricity², is one of fourteen such sets of figures. Our page on electricity and gas unit rates by region carries the full picture.

The cap's coverage is Great Britain: it applies to around 20 million GB households on variable tariffs⁴. Households in Northern Ireland are outside it altogether, in a separate market with its own suppliers and its own regulator, covered in energy bills in Northern Ireland.

Those the cap protects and those it misses

The cap applies where a customer has not signed up for a fixed term contract with their supplier²³. Those on standard variable tariffs, the default tariffs that track the market, are the people the cap protects⁹. Around 20 million GB households are on variable tariffs, including 5 million prepayment meter customers and 3 million standard credit customers⁴.

Fixing changes that position. Ofgem's own easyread guidance states: "Your prices will not be protected by the caps if you have chosen to be on a fixed-term energy tariff."²⁴ A fixed tariff is a contract at agreed rates, so the cap neither helps nor hinders it while it runs. Around 11 million households have fixed their rates⁴, which means they sit outside the cap's protection but also outside its rises until their deal ends. The trade-off between the two positions is covered in fixed and standard variable tariffs.

Business energy customers are not protected by the energy price cap²⁵, and neither are households that have "agreed a fixed tariff with your supplier", on heat networks, or on heating oil⁹.

Uncapped fuels: LPG and heating oil

Around four million households are off the gas grid, and for them the cap offers nothing on their heating fuel. Trading Standards UK states that "heating oil is not covered by Ofgem's energy price cap, leaving consumers fully exposed to sudden market increases"²⁶, and the House of Commons Library confirms that "heating oil prices aren't regulated by Ofgem and aren't covered by the energy price cap"²⁷. The same exposure applies to other bulk fuels bought by delivery, where Trading Standards UK has warned that cost of living pressures and soaring prices expose gaps in bulk fuel checks²⁶.

An off-grid household therefore buys heating fuel at whatever the market price is on the day of delivery, with no ceiling and no quarterly smoothing. The only part of an oil or LPG household's energy spend the cap touches is any electricity bought on a standard variable tariff. Ofgem's guidance for alternative homes confirms the boundary: business energy customers are not protected by the price cap²⁵, and the cap's protection for homes extends only to the regulated tariffs.

This is a structural difference in exposure. A capped household sees wholesale shocks arrive late and partially; an oil household sees them immediately and in full at the next delivery.

How your payment method, fixed deals and prepayment affect costs

Tariffs offered by energy suppliers include standard variable tariffs, renewable energy tariffs, electric vehicle tariffs, fixed price deals and prepayment tariffs²⁸. Payment method changes the price even within the cap. Customers paying by standard credit, meaning cash, cheque or bank transfer, are "hit with a significant price premium"⁴, reflecting suppliers' higher costs in collecting payment that way. The detail is in price cap rates by payment method.

Prepayment is its own category. Prepayment meters require the user to pay for energy before using it, topped up by token, key or smartcard, online or via an app²⁸. Prepayment tariffs are capped by Ofgem, with the cap calculated and updated once every three months²⁸, but "prepayment rates in general remain more costly than fixed energy deals"²⁸, and those on prepayment meters are "more likely to pay increased charges for gas and electricity"¹². Around 5 million households pay this way⁴.

Fixed tariffs sit outside the cap entirely, as covered above. When a fixed deal ends, the household moves to its supplier's standard variable tariff unless it agrees a new deal, which is the moment the cap's rates start to apply. The mechanics of that transition are in what happens when my fixed deal ends.

Policy costs, levies and VAT explained

A bill is not just the wholesale energy. Ofgem's breakdown of what makes up a bill includes VAT at 5%, wholesale costs, network costs, operating, debt and industry costs, policy costs, and adjustments for the type of energy, meter and payment method¹⁷. The wholesale element dominates, but the others are not small and they have grown: "some £63 has been added to bills since 2021 as a result of rising network charges", with "another £18 from 'green levies'"³.

Policy costs include schemes such as the Warm Home Discount, whose costs are recovered through bills. When the recovery method changes, the distribution of costs changes too: Ofgem's analysis found that "a gas heated house with high demand due to medical needs could see its annual energy bill increase by around £29" under a move of costs to the unit rate in isolation, though approximately £195 of net costs were removed from bills when accounting for the wider Budget 2025 measures³⁰.

VAT is in transition. Bills have carried VAT at 5%²⁹, but from 1 October 2026, following a UK Government decision, VAT on domestic electricity in Great Britain falls from 5% to 0%³¹. This is why electricity unit rates are being held roughly stable in the October 2026 cap even as gas rates climb: the VAT cut offsets the underlying cost pressure⁴. The zero rate on heat pumps is reported to apply until 2027, subject to conditions.

The impact on households generating their own energy

The cap is a shield against the wholesale market, but a partial and lagging one. It smooths shocks over three month windows and caps the rates, yet it cannot make energy cheaper than the gas that sets its price, and it does nothing to reduce how much a home needs. Government support has withdrawn as well: the Energy Ombudsman notes that the bill support schemes of recent years "have all ended now, which means your current bill might have increased significantly compared to a few years ago". Meanwhile domestic energy debt and arrears rose 5% to £4.79bn in the first quarter of 2026, up 15% on a year earlier³².

The deeper dependence is on gas itself, much of it imported. Official data shows the UK will no longer be able to meet national heating demand using domestically extracted gas from 2027, even if all new fields are developed³³. A household on the capped tariff is therefore exposed to world gas prices, to the pound's buying power, and to a quarterly Ofgem decision it does not control.

Reducing that exposure means reducing the amount of energy bought at capped rates: insulation, lower consumption, and generation of one's own. Each unit a home does not need, or generates itself, is a unit whose price neither the wholesale market nor the cap sets. The cap protects the price of dependence; it does not offer independence. That distinction, and the routes out of it, are developed in energy bills and energy independence.