Information for customers
Energy bills FAQ
Answers to frequently asked questions about the cost of energy, the price cap, the breakdown of an energy bill, and extra support available for customers.
Put simply: it’s all about gas. In the UK, we don’t just depend on it to heat 85% of our homes – we also use it to generate around 40% of our electricity.
Gas is traded internationally, so the prices at which energy companies buy and sell it are affected by global events. In 2022, the price of wholesale gas in Europe reached unprecedented heights, peaking at 20 times higher than the year before.
This increase happened before the invasion of Ukraine, but the uncertainty of the war and disruption to supplies from Russia led to even higher and more volatile gas prices throughout 2022.
While prices have since started to come down, it’s important to note that bills are still substantially higher than they were before 2022. Additionally, that period of the highest prices has left many customers with debts they may still be paying off.
It’s likely a lot of people will still need support with their energy bills. Learn more about the extra help available for energy customers.
Gas prices have started to come down from previous record levels. They remain, however, more than double the long-term average of prices seen before the crisis and are likely to be elevated for some time. There is no guarantee that prices will continue to fall, and global factors could mean gas becomes more expensive again.
Other factors can cause smaller rises and falls in the wholesale cost of energy – for example, in winter, when prices can temporarily increase due to higher demand. It also takes a while for customers’ energy bills to reflect those changes.
We use gas-fuelled power stations to generate a lot of our electricity – roughly 40% – so for now the price of gas is a major factor in electricity bills. However, as the nation’s electricity is made up of a growing proportion of renewable energy, we will need less gas. This will lower costs, as electricity from wind and solar is much cheaper than gas.
If you are struggling to pay your energy bill, the first thing you should do is let your supplier know. They will talk through your situation and find ways to help. They may be able to provide additional support or help agree a payment plan.
All major retail suppliers have their own funds, managed either independently or in partnership with debt advice charities such as Citizens Advice.
The Government has a range of additional support in place to help people with the cost of living – visit their website to check if you are eligible for support.
The largest part of an energy bill is the wholesale price the supplier paid to buy that energy. The rest is made up of other costs to the supplier.
These include network charges – the cost of maintaining the connections that transport the energy to homes and businesses – and policy costs. These include Government schemes to improve energy efficiency and support measures, such as the Warm Home Discount, for customers who need the most help.
Finally, there is an allowance for operating costs – the cost of running the company itself and serving customers – and VAT of 5%. Overall, suppliers have no direct control over the majority of costs included in an energy bill; these are passed straight on to the parties collecting them.
Here’s a chart showing the makeup of an average annual energy bill of £1,849 (from 1 April 2025).
The price cap is the maximum amount an energy supplier can charge their customers on a standard (default) tariff. It is updated every three months by the energy regulator Ofgem, based on the various costs that suppliers face while ensuring customers pay a fair price for their energy.
It is important suppliers are able to recoup costs – in recent years, energy companies have gone out of business for this reason, which has been costly for energy customers and taxpayers alike. However, it is set at a level where suppliers make little or no profit. Even before the gas price crisis, most suppliers were making losses on domestic accounts.
The price cap limits the amount customers pay per unit of fuel, so what you pay depends on how much you use. There can also be variations between different parts of the country.
To help customers understand the effects of changes to energy prices year on year, Ofgem estimates how much a typical dual-fuel customer paying by Direct Debit would pay over one year. From 1 October to 31 December 2024, this is set at £1,717 a year. And from 1 January to 31 March 2025, it will rise to £1,738 a year.
For a further breakdown of the price cap, visit Ofgem’s website.
If you’re on a renewable tariff, your supplier has committed to match the amount of energy you use with the amount of power they purchase for you from renewable sources. However, the actual electrons that travel into your home come from the grid, and will vary depending on factors including the time of day, the year, or the weather.
As more of the UK’s electricity comes from renewable sources, we will start to see the benefits of this cheaper power. Additionally, many people on renewable tariffs still use gas for heating – for which there are currently limited low-carbon sources.
Domestic energy supply companies run at a loss, with most suppliers not making any profit from their customers. This has been the case since before the Covid-19 pandemic. However, companies cannot afford to supply electricity and gas to their customers for less than they have paid for it, so the cap has to reflect the true cost of energy.
Many energy suppliers have failed since the prices began rising because they were unable to cover their costs. When a supplier fails, its customers have to be moved to a new supplier, an often expensive process that leads to higher bills for all energy customers.
Most retail energy companies that supply electricity and gas to households do not make a profit and often lose money, which is why more than 30 suppliers have gone out of business since 2021. This has been the case since before the Covid-19 pandemic. When companies declare their finances, they usually reflect business activities beyond energy retail sales.
Energy is an essential service, and companies need financial stability to continue generating and supplying it. And if suppliers are unable to recoup costs, they are less able to invest in improving customer services, innovating, and delivering new products and services.
This is a key requirement of the price cap that sets out how costs can be recovered from customer bills on the default tariff. It provides an allowable supplier profit margin, also known as Earnings Before Interest Tax (EBIT).
Ofgem appoints a new supplier to take on the customers through its Supplier of Last Resort (SOLR) process. This means customers don’t experience any interruptions to their energy supply, and they don’t need to take any action. However, this process comes with costs to other suppliers – and, eventually, customers.
If the failed company is too large to be taken on by another supplier, it will go into the Special Administration Regime (SAR). This means administrators and Government will take on the operation of the company to ensure customers aren’t left without energy.
The energy market is not like a normal market because energy is an essential service – if companies fail, their customers must be picked up by another supplier. Suppliers buy energy for customers in advance, so when a new supplier takes on the customers from a failed company, it may have to re-buy that energy for them.
In addition, the new supplier has to honour arrangements such as customers’ credit balances. Sometimes failed suppliers leave other liabilities, such as payments owed to industry-wide schemes.
Energy customers pay daily standing charges regardless of how much energy they use. These charges go towards the fixed costs suppliers have to pay, such as network charges – which go to the network companies transporting gas and electricity to customers’ homes. Standing charges are collected by energy suppliers through bills and passed to the network companies.
Network charges vary between regions because the costs of transporting energy vary for different parts of Britain. Suppliers have some control over how they allocate costs between standing charges and energy unit prices, but the total cannot exceed the price cap – so standing charges can vary between suppliers. If the amount collected through standing charges was reduced, the unit cost would be higher – and vice versa.
Typical Domestic Consumption Values represent the typical amount of energy used by the average domestic customer. They are calculated by Ofgem, the energy regulator, to help customers easily compare energy suppliers and tariffs. The TDCV was last updated on 1 October 2023, and was lowered to reflect the falling trend in the consumption of electricity and gas.