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Electricity and gas prices begin in wholesale markets, where suppliers buy energy, but the amount you pay also reflects networks, balancing, supplier costs, government policies, taxes, your tariff and how much energy you use. Wholesale prices can rise when fuel is scarce or demand is high, yet the change may reach your bill weeks or months later because suppliers often buy energy in advance.
There is no universal bill split: taxes, network rules, heating systems and tariff designs differ by country. The examples below identify the jurisdiction and date so you can use them as illustrations rather than assume they describe every household.
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How a wholesale price becomes a household bill
Suppliers buy energy before you use it
Retail suppliers purchase gas and electricity in wholesale markets, then recover those costs through the unit rates and standing charges on customer bills. They may buy a little at a time, sign forward contracts months ahead, or hedge several seasons in advance. Consequently, a sudden fall in the wholesale market does not necessarily produce an immediate fall in your tariff. A supplier that bought much of its winter supply earlier may still be paying the old price.
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Electricity often uses marginal pricing
In many wholesale electricity markets, generators submit offers and the system operator schedules enough output to meet demand. The most expensive generator needed for the final unit of electricity sets the marginal price for all electricity traded in that period. This design rewards lower-cost generators while ensuring enough capacity is available, but it means a costly gas plant can set the market price even when wind, solar, nuclear or hydro supplied most of the electricity.
Great Britain’s market illustrates the link. Ofgem says gas generation has often been needed at the margin, so gas prices have influenced the wholesale electricity price. More renewable generation, interconnection and storage could reduce how often gas is the marginal generator. Ofgem, relaying National Energy System Operator modelling, estimates gas could set Great Britain’s wholesale electricity price 30% of the time by 2030. That is a forecast, not a guaranteed outcome.
Why gas can affect an electricity bill
Gas has two separate routes into household costs. First, it is a direct heating fuel: in Great Britain it is the main fuel for household central heating, so cold weather increases gas demand. Second, gas-fired power stations may be the marginal generators that set electricity prices. A rise in gas import or wholesale costs can therefore increase both a gas customer’s fuel cost and an electricity customer’s wholesale rate, even if gas supplied less than half of the electricity generated that day.
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Your bill is not simply the wholesale price multiplied by consumption. Depending on the country and tariff, it can include the following components:
| Bill component | What it covers | How it behaves |
|---|---|---|
| Wholesale energy | Gas or electricity purchased by the supplier | Moves with fuel markets, demand, weather, generation and purchasing strategy |
| Network charges | Transmission and distribution wires, pipes, maintenance and upgrades | Set through national or regional rules and recovered through rates, standing charges or both |
| Balancing and system operation | Actions that keep electricity supply and demand matched and manage constraints | Can vary with congestion, outages and the amount of flexible generation available |
| Supplier operating, debt and industry costs | Billing, customer service, bad-debt costs and other industry obligations | Depends on supplier costs, regulation and the customer base |
| Supplier margin | The allowed or actual return for supplying energy | May be limited by regulation or reflected in competitive offers |
| Policy costs | Support for low-carbon generation, energy efficiency or assistance for vulnerable households | Changes when governments alter schemes or how they are funded |
| Taxes and levies | Value-added, sales or other energy taxes | Determined by jurisdiction and can change independently of wholesale prices |
| Standing charge | A fixed daily amount for maintaining an account and access to supply | Charged even on a day when you use no energy |
The unit rate is the amount charged for each kilowatt-hour (kWh) or other metered unit. The standing charge is multiplied by the number of days in the billing period. A low unit rate does not automatically mean a cheap tariff if its standing charge is high, particularly for a low-use home.
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Great Britain: a dated electricity-bill illustration
The House of Commons Library’s summary of Ofgem’s price cap provides a specific example, not a universal formula. For an eligible direct-debit customer in Great Britain (England, Scotland and Wales) using the stated typical 2,700 kWh of electricity a year, the average annual bill under the second-quarter (Q2) 2026 cap was £875. The cap applies to eligible standard variable tariffs; it is not a limit on every tariff or a United Kingdom-wide rule. Northern Ireland is outside this briefing and has a separate electricity market.
| Q2 2026 Great Britain electricity-cap component | Annual amount | Share shown in the briefing |
|---|---|---|
| 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 £875 total because other elements, including taxes and additional charges, also apply. The amounts are tied to that quarter, payment method and typical-use assumption; they should not be reused as a current estimate or as a gas-bill breakdown.
Ofgem’s explainer gives a broader, approximate description: “Wholesale energy costs, what you pay for the energy bought to supply your home or business, make up around 40% of your energy bill.” The share changes with market conditions and with what a particular bill includes.
Why prices rise or fall
Fuel costs and available supply
Gas, coal and other fuels affect the cost of running power stations and supplying gas customers. A disruption to imports, a storage shortfall, a pipeline outage or competition for liquefied natural gas can tighten supply and raise prices. Conversely, well-stocked storage and plentiful production can ease them. Fuel effects are strongest when the affected fuel is needed to meet demand at the margin.
Demand from homes and businesses
When many customers need energy at once, suppliers and generators must call on more expensive sources of supply. A cold evening can increase gas heating and electricity demand; a hot afternoon can increase electricity use for cooling. Industrial demand, economic activity and the timing of working hours also influence wholesale prices. Lower demand or abundant generation tends to put downward pressure on prices, although network constraints can prevent cheap power from reaching every area.
Weather and renewable output
Weather changes both demand and supply. Cold spells raise heating use, while heatwaves raise cooling use. Wind speed, sunshine and rainfall determine how much wind, solar and hydro generation is available. A calm, cloudy period can require more dispatchable generation; windy or sunny conditions can displace higher-cost generators. The effect differs by country’s generation mix and by whether a home heats with gas, electricity or another fuel.
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Transmission and distribution networks need continual maintenance, replacement and expansion. Electricity operators also pay generators, storage facilities or flexible customers to adjust output or consumption when supply and demand do not match. Congestion, extreme weather and equipment failures can increase these costs. Regulators may recover them through unit rates, standing charges or a combination, so two regions with similar wholesale prices can have different retail bills.
Taxes, levies and government policy
Governments decide which taxes apply and how programmes are funded. Levies may support renewable generation, energy-efficiency measures or assistance for vulnerable households. A policy change can therefore raise or lower a bill even when wholesale fuel prices are unchanged. European Union member states use different tax rates, network rules and support schemes, so an EU average cannot predict a particular country’s tariff.
Tariff design and supplier purchasing
A fixed tariff normally holds the unit rates and standing charges for a stated contract period, subject to its terms. A standard variable tariff can change when the supplier reviews prices or when a regulator resets a cap. A time-of-use tariff charges different rates at different hours, shifting some cost and risk to the customer’s schedule. Suppliers’ hedging and contract terms determine how much market volatility appears in each offer.
Your consumption and payment arrangement
Your meter readings, annual usage, heating type, region, payment method and tariff determine your actual bill. Direct debit, prepayment and other arrangements can have different rates or charges. A household that uses twice as many kWh will usually pay more in usage-based charges, but it will not necessarily pay twice as much overall because the standing charge is fixed.
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How the figures compare across jurisdictions
| Jurisdiction and measure | Reported figure | Important qualification |
|---|---|---|
| Great Britain, Q2 2026 electricity cap | £875 average annual bill for a typical direct-debit customer; 2,700 kWh typical annual use | Ofgem-cap illustration for eligible standard variable tariffs in England, Scotland and Wales |
| European Union, 2024 electricity bills | Nearly 49% was attributed to the cost of electricity itself | European Commission historical average; national taxes, levies and networks differ |
| United States, 2025 retail electricity | 13.63¢/kWh across all customer types; 17.30¢/kWh for residential customers | Preliminary U.S. Energy Information Administration data from Electric Power Monthly Table 5.3, February 2026 |
These numbers are not interchangeable. They use different currencies, units, customer groups, dates, taxes and definitions of what is included. A per-kWh average cannot be compared with an annual capped bill without matching consumption, fixed charges, payment method and local taxes.
How to read your own bill
Use the bill itself, rather than a headline wholesale price, to identify what changed:
- Confirm the billing period and meter data. Check the start and end dates, actual versus estimated readings, and the number of kWh billed. Correcting an estimate can change the bill without any tariff change.
- Find the tariff name and contract dates. Note whether it is fixed, variable, capped or time-of-use, when it began, and when rates can be reviewed.
- Separate the unit rate from the standing charge. Multiply each by the billed usage or number of days to see which part moved.
- Check payment and meter details. Direct debit, prepayment, smart-meter and other arrangements may have different prices or eligibility rules.
- Look for taxes, levies and adjustments. A policy charge, tax-rate change, debt repayment or catch-up from earlier estimates can raise the total independently of wholesale costs.
- Compare with the supplier’s price notice. It should state the effective date and explain whether the change came from a scheduled review, a regulatory cap or the end of a fixed term.
How to compare offers without misleading yourself
Compare like with like. Use the same region, expected annual electricity and gas consumption, payment method and contract length. Put unit rates and standing charges in separate columns, then calculate the annual cost under your own usage rather than relying on a supplier’s example.
- Check the length of any fixed period and the terms for early exit.
- Ask what happens when a fixed deal ends and whether you will move to a variable tariff.
- For time-of-use pricing, compare your actual daytime, evening and overnight usage with each rate band.
- Include discounts only if you can meet their conditions and duration.
- Check whether the quoted price is a regulated maximum, a supplier offer or a temporary promotion.
- Switching can reduce costs for some households, but it is not guaranteed to save money; suitability depends on usage, risk tolerance and contract terms.
Which bill reductions are within your control?
Reduce usage-based charges
Using less electricity or gas generally lowers the unit-rate portion of a bill. The saving depends on your tariff and the number of kWh avoided. Compare your consumption over comparable weather periods, because a mild winter can make an efficiency change look larger than it is.
Recognize the limits of lower consumption
Standing charges continue every day, even when no energy is used. Network, policy and tax components may also be collected through fixed charges or minimum rates. Cutting consumption therefore reduces the variable portion but cannot eliminate the entire bill.
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Choose price certainty deliberately
A fixed tariff can make budgeting easier but may cost more than a variable offer if wholesale prices fall. A variable tariff can benefit from falling prices but exposes you to increases at the next review. Time-of-use pricing may work when you can shift flexible consumption, but it can be expensive if most of your use occurs during high-price periods.
Why your bill went up when the news says prices fell
- Timing mismatch: your supplier may still be recovering the cost of energy purchased before the market decline.
- Contract change: a fixed term may have ended, moving you to a higher variable rate.
- Higher consumption: colder weather, more home working or a new appliance can outweigh a lower unit price.
- Non-wholesale charges: network, balancing, policy or tax costs may have increased.
- Estimated-to-actual adjustment: a meter reading can correct months of underbilling in one statement.
- Standing-charge increase: a lower unit rate can be offset by a higher daily charge, especially for low-use homes.
Check each possibility against the bill’s dates, readings and rate table before attributing the increase solely to gas or electricity markets.
What to expect as energy systems change
More wind, solar, storage, interconnection and demand flexibility could reduce the frequency with which gas sets electricity prices, but they do not remove the need to maintain networks or balance the system. New infrastructure and policy programmes can add costs while they are built, then potentially reduce fuel exposure later. The result for households will depend on market design, investment, taxes and how suppliers pass costs through.
The most reliable way to understand a bill is to treat wholesale prices as one input, not the whole explanation. Track your unit rates, standing charges, usage and tariff dates, and evaluate any change against the jurisdiction-specific rules that apply to your meter.
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