Energy prices explained
Read our guide to understand what costs make up your gas and electricity bill.
Want lower energy bills? Save with a fixed tariff and beat the price cap – plus get half price electricity every Sunday from 11am-4pm.1
Published on 6 January 2026 by:
Simon Wood, Head of Energy Pricing & Costing
Understand what costs make up your gas and electricity bill
Here at British Gas, we work hard to make our gas and electricity bills as clear as possible for our customers. While we’re the ones sending the bill, the final price you pay is a mix of global market rates, network maintenance, and government policies. To help make sense of it all, here’s a summary of all the costs that go into your energy bill – whoever your provider is.
The two main parts of your bill: Unit rates and standing charges
When you look at your bill you’ll see it’s made of two different costs – unit rates and standing charges. Let’s break them down.
What are unit rates?
Unit rates are the cost of the energy you actually use, measured in kilowatt-hours (kWh). Every time you make a cuppa, run the washing machine, or switch on the heating, you’re using energy. The unit rate is what you pay for each bit you use. This is the part of your bill you can control: use a little less energy, and your unit rate costs will go down.
What are standing charges?
Standing charges are a fixed daily amount that you pay regardless of how much energy you use. They apply to both gas and electricity and will vary slightly by supplier, where you live, how you pay and what meter you have.
Standing charges cover the cost of maintaining the energy supply network, operating costs and other things like government support schemes.
Think of them like the line rental you might pay if you have a landline phone. It’s the price of staying connected, not making calls.
The factors that influence energy costs
Unit rates and standing charges reflect the amount suppliers, like us, pay behind the scenes. Let’s take a closer look at all the different costs that feed into them.
What does your energy bill pay for?
Total costs for a typical household on dual fuel paying by Direct Debit based on the Ofgem price cap from 1st January 2026.
Source: Ofgem
The wholesale gas price in the UK and global markets
The wholesale gas price in the UK is usually the largest and most variable part of your energy bill. This is the cost all energy providers pay to buy gas from the companies that produce it.
Because it’s a global market, prices can be affected by things like international demand, extreme weather events or political unrest. So a really cold winter in Europe, or a disruption to supply lines anywhere in the world, can ripple through to your bill.
Surprisingly, electricity prices are also tied to the cost of gas. In the UK, the most expensive power source needed to meet demand – often gas-fired power stations – sets the wholesale price for all energy, even cheaper renewables. That means when gas prices rise, electricity prices can follow, even if your home doesn’t use gas.
Network costs: Getting energy to your home
Another significant part of your bill goes towards maintaining the energy supply network. This is things like the pylons, wires and pipes that all help get gas and electricity safely to your home. These are all managed by National Grid and local distribution companies and need regular upkeep to stay safe and reliable.
As the UK moves towards a net-zero future, the grid is expanding to connect more renewable energy. These upgrades add to costs, which are reflected in your unit rates and standing charges.
Policy costs
These costs are set by government, and all energy suppliers are mandated to collect this money through your energy bills. The money is then used to fund social and environmental schemes including the Warm Home Discount (which helps vulnerable households), insulating homes and paying for older renewable energy projects.
In Labour’s Autumn 2025 Budget, they announced plans to restructure how certain green and social schemes are funded with the removal of several policy costs from energy bills. This means from April 2026 households in England, Scotland and Wales can expect to see a cut in their energy bills of between £130 and £150 a year.
Supplier operating costs, margin and taxes
The rest of your bill covers smaller but important costs.
- Operating costs: This is what we spend to keep things running smoothly for all our customers – from billing and metering to customer service
- Profit margin: Also known as EBIT – Earnings Before Interest and Taxes. Most suppliers take a small profit, which is closely regulated by Ofgem
- Taxes: This includes VAT, usually 5%
How Ofgem regulates energy prices
The energy regulator, Ofgem, sets a price cap to make sure energy bills stay fair. Every three months, they review all the costs we’ve covered to work out the maximum amount customers should pay for unit rates and standing charges on standard variable tariffs. This helps protect customers from sudden spikes and keeps prices in line with actual costs.
You can get all the latest news and find out more in our energy price cap explainer.
Managing your energy costs
While wholesale energy prices and government levies may be out of your control, there are still plenty of things you can do to reduce your bills.
Simple changes like getting free smart meters installed or switching to paying by Direct Debit can all help save you money over time. Here’s some more quick and simple energy saving tips.
And if you’re ever finding it difficult to pay your bills, we’re here to help and support you.
Want to know more about managing your energy?
Additional information
Savings vs Ofgem's average national price cap rates for October-December 2025. Sign up to PeakSave to enjoy half-price electricity from 11am – 4pm every Sunday. You must have a smart meter to join PeakSave.