Wholesale energy costs and your bills

With rising wholesale gas costs in the news, consumers are understandably concerned about the potential impact on their bills. Wholesale energy costs, what you pay for the energy bought to supply your home or business, make up around 40% of your energy bill.

This blog post will explain what makes up wholesale energy costs, how they can affect what you pay for your energy, and what gas prices mean for your electricity bills.

The relationship between energy costs and bills

The energy price cap is the maximum amount energy suppliers in Great Britain (England, Scotland and Wales) can charge domestic consumers for each unit of energy and standing charge if they are on a standard variable tariff, also known as a default tariff. It is set every three months and makes sure that prices for people on a standard variable tariff are fair and that they reflect the cost of energy.

To protect households and businesses from market volatility, energy companies buy gas and electricity ahead of when they need it. This is called ‘hedging’. Hedging and the price cap often cause a delay between price changes in the wholesale market and what consumers pay.

Wholesale energy costs

Suppliers buy energy from electricity generators and gas producers on the wholesale market. Prices on the wholesale market can go up and down quickly and depending on what’s happening globally with fossil fuels and increasingly, renewable fuels.  Government’s Clean Power 2030 Action Plan aims to reduce our reliance on unstable fossil fuel markets by investing in clean, homegrown renewable energy.

Demand also affects price. Wholesale prices are generally lower when demand is low and fuel availability is high. They rise when the opposite is true.

Wholesale gas prices

Great Britain is a net importer of gas. Around 47% of our gas comes through a pipeline from Norway and 29% comes from our North Sea fields. We import the rest via interconnectors (pipes which link our national gas transmission system to transmission systems in Europe) or via Liquefied Natural Gas (LNG). A very small amount comes from gas storage. These supply sources compete to meet demand for natural gas, setting the UK’s wholesale gas price.

Demand

Gas is the main fuel for household central heating, so we use more of it when the weather is cold. As a result, wholesale gas prices are higher in winter than in summer. Since reaching a record high in 2004, gas demand has been steadily falling, reaching a record low in the third quarter of 2025.

LNG

Since the last energy crisis in 2022, our supply of LNG has diversified to make sure we do not need to rely on Russian gas or Gulf imports, reducing the risk of political instability potentially affecting supplies. In 2025, 15% of the gas we imported was LNG from the United States, with only 1% of this being from the Gulf.

What gas prices mean for the cost of electricity

Electricity generators sell the power they expect to generate on the wholesale market ahead of time, where electricity suppliers also buy the power they need for their customers. The price for this energy changes from day to day based on the level of supply (including availability of wind power) and the level of demand.

While renewable sources such as wind and solar are typically cheaper to produce, gas generation is more expensive due to the cost of producing gas. At any given time, there is likely to be a mixture of generation types that provide our electricity. Cheaper sources are used first, but the price for a given time is set by the most expensive type of electricity we need to use. We call this the 'marginal price'. Gas generation is often the last and most expensive source, so may set the price we pay for electricity.

Currently in Great Britain, wholesale gas prices can set the price of wholesale electricity a large majority of the time because there are not enough renewables built to avoid some use of gas. As we continue to generate more renewable electricity and develop ways to store it, for example using battery storage, gas could set our electricity prices much less frequently. Based on the National Energy System Operator (NESO)'s modelling, we estimate that gas could set this price just 30% of the time by 2030. This will mean wholesale gas prices will have a much lower impact on electricity bills.

Wholesale electricity prices

The price of electricity can be affected by demand and the sources we use for the electricity we generate.

Fuel mix in electricity generation

How we generate electricity has changed a lot in recent years. In 2015, fossil fuels were responsible for 52% of the electricity we generate, with 59% of that coming from gas, and 41% from coal. Renewable energy was responsible for just 16% of our generation. In 2025, renewable energy was responsible for 44% of the electricity we generate. Coal was no longer a source of generation, and fossil fuels accounted for 29% of our generation, all of which came from gas. By 2030, NESO estimates that gas could make up just 5% of our generation.

Renewable generation

Since 2023, wind power has replaced gas as the main source of our electricity generation in Great Britain. Our position as an island in the north-east Atlantic Ocean means Britain is one of the best places in the world for wind power. The shallow waters of the North Sea are already home to some of the world's biggest offshore wind farms.

Electricity interconnectors

Interconnectors (large cables under the sea and on land which link our national grid to those in other countries) let us quickly import and export around 10% of our electricity. This helps us have a cleaner, more resilient and efficient energy system because we can trade renewable electricity to meet demand.

Wholesale costs and future bills

The energy price cap is going down from 1 April 2026. This fall is both because of changes government made in the last budget and because of wholesale gas prices. Some costs that were previously added to energy bills for environmental schemes are being taken off bills and funded through general taxation. Although events in the Middle East are now causing some volatility in wholesale gas prices, the price cap is set from an earlier period when wholesale prices fell.

Consumers on the price cap are protected from wholesale gas cost rises until 30 June 2026, but continued disruption to global gas markets could put pressure on these prices in future price cap periods.  We continue to monitor the situation and will work with government and the sector to protect consumers.

Learn how the energy price cap works and what costs go into it.  

Read about changes to energy price cap between 1 April and 30 June 2026.  

Read about what the situation in the Middle East means for your energy bills.