Everyone pays for energy but for most of us what we are actually paying for, and why, is a bit of a mystery. This explainer picks apart the gas and electricity bill of a typical household. It explains all the different costs that energy providers pass on to the consumer through bills.
What is your energy bill made up of?
Energy bills are made up of a fixed standing charge and a variable energy charge.
The standing charge covers all the fixed costs of providing gas and electricity, such as staff costs and maintaining wires, pipes and cables that deliver energy etc. Essentially it is the price for being connected to the grid.
Everyone pays a daily electricity standing charge. Those who are on the gas grid also pay a daily standing charge for gas.
The variable part of a bill is based on the number of kWh of energy the billpayer consumes. People often think about the energy they use in terms of the number of ‘units’; one unit of gas or electricity is equal to 1kWh.
What is a typical household’s energy bill?
Ofgem, the regulator for gas and electricity markets, defines typical annual consumption as 2,700 kWh of electricity and 11,500 kWh of gas (based on the median figures across Britain).
A typical household’s gas and electricity bills will be similar, even though it will use more than four times more units of gas than electricity. This is because the unit price of electricity is much higher (around 24p/kWh) than the unit price of gas (around 6p/kWh).
In reality, everyone’s bills are different because energy consumption varies between households. This is due to differences in the size of home, its fabric efficiency, the technology used for heating and the lifestyle of occupants.
Annual bills for a typical household
Image Description
Stacked bar chart showing annual energy bills for a typical household, split into electricity and gas. Electricity costs £884 annually, with £662 from consumption and £223 from standing charges. Gas costs £833 annually, with £717 from consumption and £116 from standing charges. Data reflects the 2024 price cap for a dual-fuel household.
What makes up the price we pay?
Prices consist of many components that aren’t directly visible to the consumer. The largest of these is the fuel cost – the gas or electricity price paid by the supplier who then sells it to households. But the final consumer price also pays for things like investments in energy infrastructure, suppliers’ operating costs and profits, and environmental and social schemes.
There are six categories of components: wholesale costs, network costs, policy costs, operating costs, profit to suppliers, and VAT.
The chart below gives an overview of each component’s contribution to annual bills. Some of these are placed on the unit price, some on the standing charge and some on both.
Later we’ll look at what they all mean and why we need to pay for them (1).
Annual bill of a typical household consumption
Image Description
Stacked bar chart comparing the annual electricity and gas bills of a typical household (£1,717 total). Electricity costs £884, made up of £319 wholesale costs, £212 network costs, £141 policy costs, £122 operating costs, £48 other costs, and £42 VAT. Gas costs £833, made up of £416 wholesale costs, £158 network costs, £46 policy costs, £125 operating costs, £48 other costs, and £40 VAT.
(1) The numbers presented here are based on the October–December 2024 energy price cap for a typical consumption household. Proportions may change in the future by several percentage points as energy prices change – mostly due to fluctuations in wholesale costs. Proportions also vary based on households’ consumption, as some components are covered by the service charge and others by unit charges.
