Wholesale Gas and Electricity Prices and Why Bills Change

Household energy bills are going up because the wholesale cost of gas is going up. The recent rise in energy bills is due to the rising cost of gas around the world¹, and of the increase in bills since before the energy crisis, 54% is accounted for by higher wholesale prices, compared with 20% from network charges and 6% from so-called green levies². From 1 October 2026 the Ofgem price cap rises 4%, from £1,663 to £1,723 a year for an average household on a standard tariff paying by direct debit³: an increase of £60 on those two figures.

The shape of that rise tells the story. Gas unit rates are rising from 6.29p per kWh last winter to 8p from 1 October 2026, up around 27% year on year and the highest on record in cash terms, while electricity unit rates are being held roughly stable, helped by the Government cutting VAT on electricity⁴. The cap is not a cap on a bill. It limits the unit rate and the daily standing charge only. Ofgem is explicit: "It does not limit the cost of your total bill. The more energy you use, the higher your bill will be."⁵

Wholesale prices reach bills slowly and unevenly because the cap is recalculated only every three months, using an observation window that closed weeks before the rates take effect, and because suppliers buy energy ahead of delivery. A fall in the gas market this week does not appear in a standard variable rate this quarter. That lag cuts both ways: it damped the worst of the 2022 spike and it delays relief when markets ease.

Gas sets the price, for gas and for electricity

Gas is bought and sold on a global market, and the price cap moves with it. The rise in the cap is overwhelmingly caused by the increase in wholesale costs of energy, primarily the cost of gas⁶. The October 2026 cap rose as a result of ongoing volatility in wholesale gas markets⁶, with wholesale gas prices recently reaching a three-year high and further bill rises expected in January⁷. For the July 2026 cap, the gas wholesale price used in setting the cap rose by 50%⁸.

This is not new. During the crisis, the wholesale price of gas drove about 90% of the increase in bills⁹. Ofgem recorded a record increase in global gas prices over six months, with wholesale prices quadrupling in a year¹⁰, and by December 2021 weekly average wholesale gas prices had risen to nearly six-fold the level of February 2021¹¹.

The phrase in that Ofgem document matters for electricity as much as gas: wholesale gas prices, "to which electricity prices are closely linked"¹¹. Gas-fired generation frequently sets the marginal price in the wholesale electricity market, so a gas price shock is an electricity price shock. That is why a household that has already switched from gas heating to electric heating is not insulated from the gas market: it is exposed through a different meter. The consequence shows in unit prices. Electricity in Great Britain has typically been three to five times more expensive per unit than gas¹², and is currently around four times the price of gas⁴.

Since 2021, some £63 has been added to bills as a result of rising network charges and another £18 from green levies². Those are real and growing, and network costs were expected to push the April 2026 cap up, but they are not the main engine. The main engine is a commodity price set outside the UK.

What the price cap limits, and what it leaves open

The cap is set by Ofgem and limits how much a supplier can charge for each unit of electricity and gas used¹. It also limits the daily standing charge. It does not limit the total bill⁵. The headline annual figure is a modelled illustration for a household with typical consumption paying by direct debit, not a ceiling on any individual account.

Two practical consequences follow. First, as a result of a unit rate increase, the higher the consumption in a household, the bigger the increase in the annual bill¹³. A large, poorly insulated, gas-heated house sees a far larger cash rise from the same percentage move than a small flat. Second, the cap says nothing about how much a supplier collects by direct debit in a given month: payments can rise simply because a household is using more energy than the supplier expected.

The cap was introduced on 1 January 2019 under the Domestic Gas and Electricity (Tariff Cap) Act¹⁴. It has always been a cap on default tariff rates, not a subsidy and not a guarantee of affordability. More on the illustration itself is covered in what the price cap 'typical household' figure means and in why a bill can be higher than the cap figure.

The cap level: £1,723 from 1 October 2026

The October 2026 level sits below the October 2025 level of £1,755¹⁶ but above October 2024's £1,717¹⁵, which the National Audit Office noted was already higher than pre-crisis levels¹⁵. The path since 2019 has been anything but smooth: rapid increases in wholesale energy prices from mid-2021 onwards led to a 54% increase in the cap in April 2022¹⁷.

Within the latest reset the composition has shifted sharply. Gas unit rates rose 8.7% and gas standing charges 2.2% between the July and October 2026 caps, while electricity unit rates rose 0.8% (up 0.21p per kWh) and electricity standing charges fell 4.1% (down 2.36p a day)⁴. A household heating with gas therefore feels this rise considerably more than an all-electric one. Ofgem is also altering the definition of an "average" household⁴, which affects the headline figure without changing anyone's rates. The full sequence of levels is set out in price cap history and announcement dates.

How a bill is built up: unit rate plus standing charge

Every capped bill has one charging structure made up of a standing charge and the unit prices of gas and electricity¹⁸. The standing charge appears as a daily rate, with separate figures for each fuel, and covers the fixed costs of supplying the property: network connection, meter reading, maintenance and government obligated programmes¹⁹.

The standing charge has grown for reasons largely unconnected to the gas market. As well as infrastructure and obligated programmes, much of the rise has paid for the cost of transferring customers of failed energy suppliers to new suppliers, and it reflects a conscious decision from Ofgem on how to pay for energy networks²⁰. That is why standing charges did not fall when wholesale prices fell.

Tariffs advertised with no standing charge do not remove the fixed costs. They charge a much higher unit rate for the first two units of gas and electricity used each day, then a lower rate thereafter²⁰, and generally carry higher unit rates that can result in higher bills overall¹³. Low-use households may gain, high-use households usually do not. See standing charges and no standing charge tariffs.

Quarterly resets, the lag, and why relief arrives late

The cap is recalculated every three months. Ofgem moved from setting the cap every six months to every quarter in summer 2022, in response to high and volatile wholesale prices²¹. Quarterly resets pass market falls through faster than six-monthly ones did, but they also pass rises through faster, and they do not remove the delay.

The delay has three parts. The wholesale allowance is built from observed forward prices over a window that ends before the announcement. The announcement itself comes weeks before the rates apply: the October 2026 level was announced in late August 2026³. And the resulting rate then runs for a full quarter regardless of what markets do inside it. A household on a standard variable tariff is, in effect, paying a price derived from a market that has already moved on.

For most people the change is felt later still, because it reaches them through a revised bill or a revised direct debit rather than on the day itself. A rise in the cap starts being reflected in revised bills only once suppliers reissue them.

Fourteen regional caps, and Northern Ireland outside them

A separate price cap is set for each of the 14 regions and applies throughout the region, with no breakdown below regional level¹¹. Regional differences follow the cost of each distribution network, so some regions, such as Merseyside and North Wales, pay substantially more than others, such as London⁴.

The scale is visible in published regional rates. For January to March 2026, the direct debit single-rate electricity unit rate was 27.83p per kWh in southern Scotland and 28.36p per kWh in northern Scotland¹². In South Wales, cap rates of 26.33p per kWh with a 57.84p daily standing charge were recorded for a single-rate meter in September 2026²².

Northern Ireland has a separate energy market and is not covered by the Great Britain default tariff cap: Ofgem's October to December 2025 level applied to typical households in England, Scotland and Wales¹⁶. Households there should read energy bills in Northern Ireland. Regional detail for Great Britain is in electricity and gas unit rates by region.

Who is covered and who is not

The cap protects people on standard variable tariffs, where the unit rate can go up or down depending on the energy market⁵. It applies where a customer has not signed up to a fixed-term contract¹¹, and covers people on standard plans whether they pay by direct debit, on receipt of a bill, or through a prepayment meter.

• Covered: around 20 million households in Great Britain on variable tariffs, including 5 million prepayment meter customers and 3 million standard credit customers⁴.
• Not covered: fixed-term tariffs. Ofgem's guidance states, "Your prices will not be protected by the caps if you have chosen to be on a fixed-term energy tariff."²³ Around 11 million households in Great Britain hold fixed deals⁴.
• Not covered: business energy customers. "Business energy customers are not protected by the energy price cap."²⁴
• Not covered: heat networks, and heating oil⁵.

Around 60% of households are on rates set by the cap because they have not moved to fixed deals²⁵.

Heating oil and LPG: no cap at all

Heating oil prices are not regulated by Ofgem and are not covered by the energy price cap²⁶. Trading Standards has warned that heating oil is not covered by Ofgem's energy price cap, "leaving consumers fully exposed to sudden market increases"²⁷. Households using heating oil and LPG sit outside the cap and have no equivalent protection when global prices spike²⁸.

This matters disproportionately to rural homes off the gas grid, which are the same homes that typically have the fewest tariff choices. A spike in crude prices arrives at the tank in days, not at the next quarterly reset. Nothing in the cap mechanism dampens it, and there is no regulated maximum unit price for a delivery.

Fixed tariffs, prepayment and how payment method changes the price

A fixed-rate tariff locks in the price per unit of energy, protecting the household from increases in energy prices²⁹. The unit cost and the daily fee are fixed; the amount charged still depends on how much energy is used, so bills still vary month to month. A fix is also not protected by the cap, so a rate agreed above the cap stays above it when the cap falls.

Prepayment tariffs are capped by Ofgem, so they cannot charge more than a specified unit rate, with the cap calculated and updated once every three months³⁰. Historically, prepayment meter consumers faced higher energy costs than those paying by direct debit³¹. That premium has been addressed: the cost premium associated with paying by prepayment, as opposed to direct debit, was removed through the Ofgem price cap³², and one market analysis found that as of June 2026 prepayment customers were paying less for both gas and electricity than direct debit customers³³. Some older guidance still describes prepayment as one of the most expensive types of deal, reflecting the position before levelisation.

The remaining penalty falls elsewhere: customers paying by standard credit, that is by cash, cheque or bank transfer, are hit with a significant price premium⁴. Comparisons are set out in price cap rates by payment method and standard credit vs direct debit.

VAT, levies and policy costs

Ofgem sets out the components used to calculate capped bills: wholesale costs, network costs, operating, debt and industry costs, earnings before interest and tax, policy costs, and VAT¹⁸. Domestic energy has carried VAT at 5% on both gas and electricity³⁴. From 1 October 2026 electricity unit rates are being held roughly stable, helped by the Government cutting VAT on electricity⁴.

Policy costs are the smallest of the three commonly blamed elements: green levies account for 6% of the rise in bills since before the crisis, against 20% for network charges and 54% for wholesale prices². Costs move between the standing charge and the unit rate as policy changes: government modelling of Warm Home Discount cost recovery found that a gas-heated house with high demand due to medical needs could see its annual energy bill increase by around £29 under the move to the unit rate in isolation, while approximately £195 of net costs were removed from bills when Budget 2025 measures were accounted for³⁵. See policy costs and levies on energy bills and what makes up a UK energy bill.

What this means for household energy independence

The honest summary is that the cap regulates a price, it does not reduce exposure. A household on a capped variable tariff is fully exposed to the international gas market, with a delay of a quarter and a smoothing effect, and that exposure reaches both fuels because gas-fired generation sets the electricity price. Fixing a tariff transfers the timing risk to the supplier for a term, at a price the supplier chooses; it does not sever the link. Prepayment, standard credit and direct debit change what is paid, not what is bought.

Real independence changes the quantity, not the rate. Because the higher the consumption, the bigger the cash effect of any unit rate increase¹³, the only durable protection against wholesale volatility is using fewer units: fabric efficiency first, then on-site generation and storage. Solar Energy Scotland's framing is blunt on the national version of the same point: more homegrown energy means greater energy independence³⁶.

Dependencies that remain, whatever a household does:

• The standing charge. It is paid regardless of consumption, it covers network and legacy supplier-failure costs, and generating your own power does not avoid it while the property stays connected²⁰.
• The network. A grid-connected home pays distribution costs that account for 20% of the bill rise since before the crisis².
• A supplier relationship, and with it a billing system, a direct debit and, for most, a smart meter.
• The gas market, for any home still heating with gas, and indirectly for electricity.
• No protection at all for heating oil and LPG users, who sit outside the cap entirely²⁸.

Government bill support grants issued during the crisis have all ended, which means current bills may have increased significantly compared to a few years ago³⁷. There is no scheme in place holding rates below the cap. For where the money actually goes in a typical home, see reducing an energy bill and energy bills and energy independence; for the wider picture, the pillar guide at /bills-price-cap/.