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.
Note: Updated on 8 October 2025 to reflect the latest price cap numbers.
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 currently 26.4 p/kWh (as of October 2025), much higher than the unit price of gas, only 6.3p/kWh. This means that the price ratio is 4.2.
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
What makes up the price we pay?
Energy 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
These cost categories are split up differently across the standing charges and variable costs of gas and electricity bills. All the gas network costs are billed on the variable component, while almost half of electricity network costs are on the standing charge. In contrast, not only does gas have a much smaller amount of policy costs overall compared to electricity, but almost 40% of them are on the standing charge, compared to less than 13% for electricity.
Breakdown of a typical dual-fuel energy bill
(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.
