London Daily

Focus on the big picture.
Saturday, Nov 15, 2025

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
UK Upholds Firm Rules on Stablecoins to Shield Financial System
Brussels Divided as UK-EU Reset Stalls Over Budget Access
Prince Harry’s Remembrance Day Essay Expresses Strong Regret at Leaving Britain
UK Unemployment Hits 5% as Wage Growth Slows, Paving Way for Bank of England Rate Cut
Starmer Warns of Resurgent Racism in UK Politics as He Vows Child-Poverty Reforms
UK Grocery Inflation Slows to 4.7% as Supermarkets Launch Pre-Christmas Promotions
UK Government Backs the BBC amid Editing Scandal and Trump Threat of Legal Action
UK Assessment Mis-Estimated Fallout From Palestine Action Ban, Records Reveal
UK Halts Intelligence Sharing with US Amid Lethal Boat-Strike Concerns
King Charles III Leads Britain in Remembrance Sunday Tribute to War Dead
UK Retail Sales Growth Slows as Households Hold Back Ahead of Black Friday and Budget
Shell Pulls Out of Two UK Floating Wind Projects Amid Renewables Retreat
Viagogo Hit With £15 Million Tax Bill After HMRC Transfer-Pricing Inquiry
Jaguar Land Rover Cyberattack Pinches UK GDP, Bank of England Says
UK and Germany Sound Alarm on Russian-Satellite Threat to Critical Infrastructure
Former Prince Andrew Faces U.S. Congressional Request for Testimony Amid Brexit of Royal Title
BBC Director-General Tim Davie and News CEO Deborah Turness Resign Amid Editing Controversy
Tom Cruise Arrives by Helicopter at UK Scientology Fundraiser Amid Local Protests
Prince Andrew and Sarah Ferguson Face Fresh UK Probes Amid Royal Fallout
Mothers Link Teen Suicides to AI Chatbots in Growing Legal Battle
UK Government to Mirror Denmark’s Tough Immigration Framework in Major Policy Shift
UK Government Turns to Denmark-Style Immigration Reforms to Overhaul Border Rules
UK Chancellor Warned Against Cutting Insulation Funding as Budget Looms
UK Tenant Complaints Hit Record Levels as Rental Sector Faces Mounting Pressure
Apple to Pay Google About One Billion Dollars Annually for Gemini AI to Power Next-Generation Siri
UK Signals Major Shift as Nuclear Arms Race Looms
BBC’s « Celebrity Traitors UK » Finale Breaks Records with 11.1 Million Viewers
UK Spy Case Collapse Highlights Implications for UK-Taiwan Strategic Alignment
On the Road to the Oscars? Meghan Markle to Star in a New Film
A Vote Worth a Trillion Dollars: Elon Musk’s Defining Day
AI Researchers Claim Human-Level General Intelligence Is Already Here
President Donald Trump Challenges Nigeria with Military Options Over Alleged Christian Killings
Nancy Pelosi Finally Announces She Will Not Seek Re-Election, Signalling End of Long Congressional Career
UK Pre-Budget Blues and Rate-Cut Concerns Pile Pressure on Pound
ITV Warns of Nine-Per-Cent Drop in Q4 Advertising Revenue Amid Budget Uncertainty
National Grid Posts Slightly Stronger-Than-Expected Half-Year Profit as Regulatory Investments Drive Growth
UK Business Lobby Urges Reeves to Break Tax Pledges and Build Fiscal Headroom
UK to Launch Consultation on Stablecoin Regulation on November 10
UK Savers Rush to Withdraw Pension Cash Ahead of Budget Amid Tax-Change Fears
Massive Spoilers Emerge from MAFS UK 2025: Couple Swaps, Dating App Leaks and Reunion Bombshells
Kurdish-led Crime Network Operates UK Mini-Marts to Exploit Migrants and Sell Illicit Goods
UK Income Tax Hike Could Trigger £1 Billion Cut to Scotland’s Budget, Warns Finance Secretary
Tommy Robinson Acquitted of Terror-related Charge After Phone PIN Dispute
Boris Johnson Condemns Western Support for Hamas at Jewish Community Conference
HII Welcomes UK’s Westley Group to Strengthen AUKUS Submarine Supply Chain
Tragedy in Serbia: Coach Mladen Žižović Collapses During Match and Dies at 44
Diplo Says He Dated Katy Perry — and Justin Trudeau
Dick Cheney, Former U.S. Vice President, Dies at 84
Trump Calls Title Removal of Andrew ‘Tragic Situation’ Amid Royal Fallout
UK Bonds Rally as Chancellor Reeves Briefs Markets Ahead of November Budget
×