London Daily

Focus on the big picture.
Monday, Sep 07, 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
University of Bristol Opens £500 Million Innovation Campus
Families Give Evidence to Independent Review of Sussex Maternity Failures
Sweden Confirms Deportation of 458 British Citizens Over Post-Brexit Residency Rules
UK Launches £3 Million Challenge for Long-Duration Energy Storage
Reform UK Proposes £100 Billion in Spending Cuts and Brownfield Deregulation
Andy Burnham Warns Macron That EU Procurement Rules Could Hurt British Steel
Andy Burnham Faces Major Decision on Future North Sea Oil and Gas Drilling
SEND Support in England Projected to Reach One in 10 Pupils
England’s Housing Courts Struggle With Surge in No-Fault Eviction Cases
Violent Clashes Erupt in Portsmouth During Protest Against Asylum Processing
Three-Quarters of NHS Emergency Staff Report Regular Violence or Aggression
UK Considers Converting Female Prison Space for Male Inmates as Overcrowding Worsens
UK House Prices Record First Annual Decline in Nearly Three Years
UK Government Reassesses Policy Toward Israel Amid Calls for Diplomatic Shift
Reform UK Faces Police Scrutiny Over Alleged Foreign Donations Scheme
University of Bristol Opens £500 Million Temple Quarter Enterprise Campus
Online Bookmakers Accused of Privacy Breaches Through Cookie Consent Practices
Health Campaigners Urge UK Government to Abandon U.S. Pharmaceutical Agreement
Three-Quarters of UK A&E Staff Report Regular Violence or Aggression
Far-Right Demonstrations Target Portsmouth as Small-Boat Crossings Fuel Tensions
UK Records Hottest Summer on Record After Severe Heatwaves
UK Travellers Face Renewed EU Border Delays as Temporary Flexibility Ends
UK Rejects Calls to Pause AI Data Centre Expansion Despite Energy Concerns
UK Defence Figures Push for 3% Spending Target Amid Falklands Concerns
England Faces Rising Financial Pressure as Special Educational Needs Plans Surge
Metropolitan Police Consider Reform UK Probe Over Overseas Donations
Keir Starmer to Leave Parliament, Triggering By-Election
UK Treasury Weighs Windfall Taxes on Banks and Oil Companies Amid Bond Market Turmoil
Jaguar Land Rover to Cut Thousands of Jobs as UK Government Rules Out Bailout
OpenAI Unveils GPT-6 and Says: "We May Already Have Reached AGI"
Congressman Accused Andrew of Sex Crimes in the United States
Donald Trump: "I'm Glad Harry and Meghan Left the United States"
Spicy Food Is Linked to Lower Death Risk — but It Is Not a Miracle Cure
AfD Enters Saxony-Anhalt Election at 41% in Historic Test for German Politics
Gen Z Turns to Investing as America's First-Home Dream Moves Further Out of Reach
Thousands Join London March Calling for Tighter Abortion Restrictions
Institute of Directors Says Tax and Regulatory Uncertainty Still Weighs on UK Investment
Bank of England Faces Rate Dilemma as Weak Growth and Persistent Inflation Raise Stagflation Risks
Masked Anti-Immigration Protesters Block Roads to Port of Dover
Prime Minister Andy Burnham Sets Out Devolution and Re-Industrialisation Agenda
British Chambers of Commerce Forecasts UK Growth of Just 1% Through 2027
UK Government Advances Bill to Tighten Rules on Overseas Political Donations
Nigel Farage Faces Scrutiny Over Alleged Reform UK Donation-Law Evasion
Thousands Join Anti-Abortion March Through Central London
UK Beekeepers Call for Nationwide Tracking as Asian Hornet Sightings Increase
England Sees Sharp Rise in Property Subsidence Claims After Record Summer Heat
House of Lords Advances Financial Services Reform Bill
House of Lords Begins Detailed Scrutiny of Railways Bill and Great British Railways Plan
UK Treasury Cuts Green Book Discount Rate to Support More Regional Infrastructure Projects
Reform UK Suspends Two Senior Aides After Undercover Report on Foreign Donation Rules
×