London Daily

Focus on the big picture.
Tuesday, Mar 31, 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
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
Eli Lilly Seeks UK Pricing Deal to Unlock Renewed Pharmaceutical Investment
Three Arrested in UK After Massive Cocaine Haul Discovered Hidden in Banana Shipment
UK Fuel Prices Poised for Further Surge Amid Global Energy Pressures
Apple Subsidiary Penalized by UK Authorities for Breach of Moscow Sanctions
Western Allies Intensify Coordinated Sanctions Strategy Against Russia
UK Lawmakers Face Criticism Over Renewed Push for Social Media Restrictions
Starmer Signals UK Crackdown on Addictive Social Media Features
Rising Costs Push One in Five UK Hospitality Businesses to the Brink of Closure
Man Arrested on Suspicion of Attempted Murder After Car Strikes Pedestrians in UK, Injuring Seven
Escalating Conflict Involving Iran Tightens Fiscal Pressures and Highlights UK Economic Vulnerabilities
UK Moves to Confront Russian ‘Shadow Fleet’ Operating in Its Waters
UK Housing Divide Deepens as Older Owners Hold Wealth While Under-30s Face Mounting Barriers
London Demonstration Calls on UK to Recognize Iranian Opposition’s Provisional Government
UK Green Party Vote on ‘Zionism is Racism’ Motion Collapses Amid Internal Disputes and Technical Failures
SNL UK Ignites Debate with Sharp Royal Satire Targeting Prince Andrew and Prince William
EU Proposes ‘Emergency Brake’ to Resolve Deadlock in UK Youth Mobility Talks
Thousands Rally in London to Oppose Rise of Far-Right Movements
Hong Kong Official Rejects Allegations of Surveillance Orders Targeting UK-Based Dissidents
PayPal Expands Cryptocurrency Services to Allow UK Users to Buy and Sell Bitcoin
UK Minister Challenges Reform Party’s ‘Pro-Family’ Agenda as Debate Intensifies
Concerns Grow Over Meningitis Risk Among UK Students Amid Warning Signs of New Outbreaks
Japanese Grand Prix 2026: Schedule, UK Start Times and Full Broadcast Details
Electric Vehicles Seen as Strategic Solution to UK Fuel Reserve Concerns
Rise of Lone-Actor Threats and Online Radicalisation Drives New Wave of Antisemitic Attacks in the UK
Canada Advances Plan to Ban Cryptocurrency Donations in Election Campaigns
UK Faces Looming Medicine Shortages as Iran Conflict Threatens Supply Chains
Deadly Meningitis Outbreak in the U.K. Highlights Urgent Need for Vaccination
Fresh Claims Emerge Over Harry and Meghan’s Australia Visit as Insider Speaks Out
NATO Assessment Indicates UK Defence Spending Has Fallen Below Alliance Average
FTSE 100 Slips as Middle East Tensions Weigh on Investor Sentiment
UK Economy Begins to Feel Early Impact of Iran Conflict as Policy Challenges Intensify
Russian National Jailed in UK After Assault Case Linked to Barron Trump’s Alert
Energy Price Surge Accelerates Shift Away from Fossil Fuels in UK Homes
UK Museums House More Than 260,000 Human Remains, New Report Reveals
Surging UK Gilt Yields Reflect Inflation Pressures and Fiscal Uncertainty
UK Issues Updated Guidance on Children’s Screen Time with Focus on Balance and Wellbeing
UK Migration Figures Show Shifting Trends Across Asylum, Visas and Channel Crossings
UK Watchdog Launches Probe into Five Firms Over Alleged Fake Reviews and Ratings
Jaguar Land Rover Halts Production at UK Plant Amid Supplier Disruption
UK Police Reverse Position, Confirm Arrests Will Resume for Palestine Action Protests
UK Small Businesses Face Europe’s Steepest Cost Pressures, New Survey Reveals
US Envoy Urges UK to Proceed with King’s Visit Amid Diplomatic Sensitivities
FTSE 100 Drops Over One Percent as Middle East Tensions Weigh on Markets
UK CO2 Plant Set to Reopen as Authorities Move to Safeguard Supplies Amid Middle East Tensions
×