Understand your electricity and gas bills

Costs included in your electricity and gas bills

There are different costs that are included in your electricity and gas bill. They are: 

• unit rates

• standing charges

• taxes, like VAT

The unit price rate is the rate charged per unit of electricity or gas you use. It is measured in kilowatt hours (kWh).

Electricity and gas standing charges

The standing charge is a cost that is included in each electricity and gas bill. It is a cost set by your supplier. It is also included in the energy price cap that we review and set every three months. Your supplier will charge you this cost each day, even if you do not use any energy on that day. The amount you pay will depend on your supplier and where you live within England, Scotland or Wales. Get energy price cap standing charges and unit rates by region.

The charge covers the cost to maintain the energy supply network, take meter readings, and support government social and environmental schemes.

Some suppliers do not include a standing charge in their tariffs. Instead, they offer a tariff that works in a similar way, but you pay a bit more for the first one or two units called kilowatt hour (kWh) of energy you use.

What these costs mean

Wholesale costs

These are what you pay for the energy bought to supply your home or business. They make up about a third of your energy bill. Suppliers buy energy from electricity generators and gas producers on the wholesale market. 

Prices on the wholesale market can go up and down very quickly. They depend on what’s happening globally with fuels like gas, oil, coal and increasingly renewable fuels. 

Demand also affects price. Wholesale prices are generally lower when demand is low and fuel availability is high. They rise when the opposite is the case.

Suppliers often buy energy in advance for their tariffs, some by as much as two to three years. They usually buy energy for fixed-term tariffs closer to when they launch them. 

These differences mean wholesale price changes don’t affect all tariffs in the same way at the same time.

Network costs

These are for the gas pipes and electricity cables that carry energy across the country into your home or business.

Network companies charge your supplier an Ofgem-regulated price for their use of the energy network. This money goes towards maintaining, running and upgrading the networks.

Network costs vary year to year. For example, to reflect usage or how we need to allocate costs on different parts of the network. 

Network costs include ‘balancing’ charges. Supply and demand is balanced second-by-second for electricity and daily for gas. These charges vary over time.

Social and environmental obligation costs

Larger suppliers have to help pay for government energy policies. These costs could cover schemes to support energy efficiency improvements in homes and businesses, help vulnerable people and encourage take-up of renewable technology.

Other direct costs

These cover costs for things like:

• third-party services, such as sales commissions and brokerage
• meter maintenance and installations
• administration from data and settlement services like Elexon and Xoserve 
• wider smart metering programme costs

Supplier operating and margin costs

When suppliers set their prices they will try to cover their operating costs as well as make a profit.

Operation costs cover things like customer service, billing and the general costs of running an energy business. 

Margins are a supplier’s overall earnings before deducting interest, tax and other costs.