London Daily

Focus on the big picture.
Monday, Jan 19, 2026

Cost of living: What is the energy price cap and why are bills rising so sharply?

Cost of living: What is the energy price cap and why are bills rising so sharply?

Sky's Paul Kelso takes you through the spike in household energy costs and explains why the cap continues to rise.

Energy bills continue to rise for millions of people across the country - with more pain set to come later this year.

In April the energy price cap was lifted by 54% to £1,971 - and in October it is expected to rise by another £830 to £2,800.

With the cost of living rising on many fronts it has made energy prices a key political as well as practical issue for millions of households.

What is the price cap?


The energy price cap sets the maximum figure that can be charged to customers on a variable dual-fuel rate for typical usage of gas and electricity for a six-month period.

Introduced in 2019, it is based on a number of factors including the wholesale cost of power in the previous six months.

Ofgem estimates that 22 million households are currently on variable rates, the number swelled by around two million customers whose suppliers have gone bust in the last year.

The price cap is not the maximum that anyone can be charged - customers with high energy usage will have higher bills - but rather reflects typical usage levels.

What makes up energy bills?


The cap is calculated on the basis of wholesale fuel prices plus a range of taxes and operating costs.

At the price cap announcement in October 2021, bills were broken down as follows: 36% wholesale costs; 25.35% network costs; 18.62% operating costs; 15.33% environmental & social costs; VAT 4.76%; 2.24% other costs; 0.93% supplier pre-tax profit margin.

A sustained increase in wholesale gas prices is the principal driver of rising bills.

What about the other components in a bill?


The environmental and social costs include projects to help decarbonise energy supply such as improving insulation in customer homes.

There has been pressure from Conservative backbenchers to cut these so-called "green taxes" which are technically levied on electricity generation.

The social costs include schemes to help the most vulnerable customers including the Warm Homes Discount (WHD) which provides a rebate of around £140 to more than 1.5 million people on particular benefits.

Why has the price of gas risen so much?


Gas supplies have been badly disrupted by Russia's invasion of Ukraine, with Ofgem's chief executive warning that price changes are "genuinely a once-in-a-generation event not seen since the oil crisis of the 1970s".

The war comes off the back of a cold European winter last year that drained supplies, increased demand from Asia & China, and gas-powered electricity generation that filled the energy gap when renewable sources were not available during a relatively calm summer.

Newsletter

Related Articles

0:00
0:00
Close
High-Speed Train Collision in Southern Spain Kills at Least Twenty-One and Injures Scores
Meghan Markle May Return to the U.K. This Summer as Security Review Advances
Trump’s Greenland Tariff Threat Sparks EU Response and Risks Deep Transatlantic Rift
Prince Harry’s High Court Battle With Daily Mail Publisher Begins in London
Trump’s Tariff Escalation Presents Complex Challenges for the UK Economy
UK Prime Minister Starmer Rebukes Trump’s Greenland Tariff Strategy as Transatlantic Tensions Rise
Prince Harry’s Last Press Case in UK Court Signals Potential Turning Point in Media and Royal Relations
OpenAI to Begin Advertising in ChatGPT in Strategic Shift to New Revenue Model
GDP Growth Remains the Most Telling Barometer of Britain’s Economic Health
Prince William and Kate Middleton Stay Away as Prince Harry Visits London Amid Lingering Rift
Britain Braces for Colder Weather and Snow Risk as Temperatures Set to Plunge
Mass Protests Erupt as UK Nears Decision on China’s ‘Mega Embassy’ in London
Prince Harry to Return to UK to Testify in High-Profile Media Trial Against Associated Newspapers
Keir Starmer Rejects Trump’s Greenland Tariff Threat as ‘Completely Wrong’
Trump to hit Europe with 10% tariffs until Greenland deal is agreed
Prince Harry Returns to UK High Court as Final Privacy Trial Against Daily Mail Publisher Begins
Britain Confronts a Billion-Pound Wind Energy Paradox Amid Grid Constraints
The graduate 'jobpocalypse': Entry-level jobs are not shrinking. They are disappearing.
Cybercrime, Inc.: When Crime Becomes an Economy. How the World Accidentally Built a Twenty-Trillion-Dollar Criminal Economy
The Return of the Hands: Why the AI Age Is Rewriting the Meaning of “Real Work”
UK PM Kier Scammer Ridicules Tories With "Kamasutra"
Strategic Restraint, Credible Force, and the Discipline of Power
United Kingdom and Norway Endorse NATO’s ‘Arctic Sentry’ Mission Including Greenland
Woman Claiming to Be Freddie Mercury’s Secret Daughter Dies at Forty-Eight After Rare Cancer Battle
UK Launches First-Ever ‘Town of Culture’ Competition to Celebrate Local Stories and Boost Communities
Planned Sale of Shell and Exxon’s UK Gas Assets to Viaro Energy Collapses Amid Regulatory and Market Hurdles
UK Intensifies Arctic Security Engagement as Trump’s Greenland Rhetoric Fuels Allied Concern
Meghan Markle Could Return to the UK for the First Time in Nearly Four Years If Security Is Secured
Meghan Markle Likely to Return to UK Only if Harry Secures Official Security Cover
UAE Restricts Funding for Emiratis to Study in UK Amid Fears Over Muslim Brotherhood Influence
EU Seeks ‘Farage Clause’ in Brexit Reset Talks to Safeguard Long-Term Agreement Stability
Starmer’s Push to Rally Support for Action Against Elon Musk’s X Faces Setback as Canada Shuns Ban
UK Free School Meals Expansion Faces Political and Budgetary Delays
EU Seeks ‘Farage Clause’ in Brexit Reset Talks With Britain
Germany Hit by Major Airport Strikes Disrupting European Travel
Prince Harry Seeks King Charles’ Support to Open Invictus Games on UK Return
Washington Holds Back as Britain and France Signal Willingness to Deploy Troops in Postwar Ukraine
Elon Musk Accuses UK Government of Suppressing Free Speech as X Faces Potential Ban Over AI-Generated Content
Russia Deploys Hypersonic Missile in Strike on Ukraine
OpenAI and SoftBank Commit One Billion Dollars to Energy and Data Centre Supplier
UK Prime Minister Starmer Reaffirms Support for Danish Sovereignty Over Greenland Amid U.S. Pressure
UK Support Bolsters U.S. Seizure of Russian-Flagged Tanker Marinera in Atlantic Strike on Sanctions Evasion
The Claim That Maduro’s Capture and Trial Violate International Law Is Either Legally Illiterate—or Deliberately Deceptive
UK Data Watchdog Probes Elon Musk’s X Over AI-Generated Grok Images Amid Surge in Non-Consensual Outputs
Prince Harry to Return to UK for Court Hearing Without Plans to Meet King Charles III
UK Confirms Support for US Seizure of Russian-Flagged Oil Tanker in North Atlantic
Béla Tarr, Visionary Hungarian Filmmaker, Dies at Seventy After Long Illness
UK and France Pledge Military Hubs Across Ukraine in Post-Ceasefire Security Plan
Prince Harry Poised to Regain UK Security Cover, Clearing Way for Family Visits
UK Junk Food Advertising Ban Faces Major Loophole Allowing Brand-Only Promotions
×