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.

Notes:

• Originally published 22 November 2024
• Updated on 8 October 2025 to reflect the latest price cap numbers
• Updated on 21 November 2025 to forthcoming January 2026 price cap

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.

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 typically much higher than the unit price of gas. The relative difference between the two is called 'the price ratio'. The current price ratio is 4.2, but it will rise to 4.7 in January because the cost of electricity is set to increase, while the gas price falls.

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.

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 broad categories of bill 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.

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 42% of them are on the standing charge, compared to 13% for electricity.