Electricity prices in Great Britain

Approximate read time: 15 minutes

On 4 June 2026, the House of Lords is scheduled to consider the following question for short debate in Grand Committee:

Lord Lilley (Conservative) to ask His Majesty’s Government what assessment they have made of why UK electricity prices are among the highest in the Organisation for Economic Co-operation and Development.

Please note that this briefing primarily focuses on Great Britain as Northern Ireland has a separate energy market.

1. How are electricity bills calculated?

1.1 Households

Household energy bills are typically made up of a unit rate for each kilowatt hour (kWh) of electricity used plus a daily standing charge.^[1] A bill is calculated by multiplying the unit rate by the amount of electricity used and adding the standing charge.

The amount an individual household pays for their unit rate and standing charge depends on their tariff. Most households are on default electricity tariffs, known as standard variable tariffs, which fluctuate with market conditions but are subject to the energy price cap.^[2] The energy price cap sets a limit on the maximum amount that suppliers can charge for each unit of gas or electricity and for standing charges. Great Britain’s energy regulator, Ofgem, reviews and sets the price cap every three months based on the cost of wholesale energy.^[3] Households can also be on a fixed energy tariff where the unit rates and standing charges remain the same for the length of the contract the household agreed with their energy supplier.^[4]

1.2 Businesses

Similarly to domestic bills, business energy bills are made up of the amount of energy used and the standing charge.^[5] However, they can also include additional costs like the climate change levy and a higher rate of VAT.^[6] There is also no price cap for businesses, with suppliers tailoring the contracts they offer to each business. The rates offered will vary based on usage, contract terms, location and market conditions. Energy suppliers do not have a duty to offer a business an energy contract, unlike householders where there is an obligation to supply.^[7]

2. How much does electricity cost?

2.1 Households

Between the early 2000s and 2021, electricity prices were steadily increasing.^[8] However, following Russia’s invasion of Ukraine in 2022, prices increased sharply. They subsequently fell but remained higher than before the invasion. In 2026, due to the US/Israel conflict with Iran, prices have again increased, though not to the extent seen in 2022.

Figure 1. Electricity price cap for GB-average direct debit customer with typical consumption per year 2017 to 2026

On 27 May 2026, Ofgem announced the details of its new price cap for 1 July to 30 September 2026.^[9] The electricity cap rose by 5% and the gas cap by 24%, leading to an average rise of 13%.^[10] A typical household paying (by direct debit) an annual bill of £1,862 will see an increase of £221. The Energy Saving Trust said that the price cap for the daily standing charge would be 57.19p and the price cap for the unit cost per kWh would be 26.11p.^[11]

Concerns have been raised that due to the conflict with Iran, prices could continue to increase into the autumn and winter.^[12]

2.2 Businesses

Like domestic energy users, non-domestic users have also seen an increase in prices in recent years. The Office for National Statistics (ONS) said that since 2021, the average electricity price for UK non-domestic users has “increased sharply”.^[13] It explained that the price increased from 14.81 pence per kWh in the first quarter of 2021 to a peak of 28.39 pence per kWh in the fourth quarter of 2023. The price fell to 25.97 pence per kWh in the fourth quarter of 2024; however, this was still 75% higher than the average price at the start of 2021.

Bionic, a comparison site for small businesses, has published the average cost of a business energy bill in 2026, based on the size and usage figures of an ‘average’ business.^[14] It said that the average energy bills were as follows:

• micro business: £2,751
• small business: £5,259
• medium business: £10,200
• large business: £13,940

2.3 How do electricity prices compare internationally?

2.3.1 Domestic prices

Statistical comparisons published by the government have shown that in 2024 the UK had the second highest domestic electricity price including taxes in the G7, with Germany having the highest.^[15] Italy was slightly below the UK and France, Japan, the US and Canada all had lower prices. This meant that the UK had a higher price than the G7 average.

Figure 2. Domestic electricity prices (including taxes) in the G7 from the International Energy Agency, 1979 to 2024

2.3.2 Non-domestic prices

Deloitte, a consultancy, reported that in 2023 the UK had the highest industrial electricity prices among the 24 members of the International Energy Agency (IEA).^[16] It said UK firms paid around 50% more for electricity than German and French competitors and around four times as much as companies in the US. Deloitte also reported that UK firms paid around three times as much for electricity as those in India and China (who are not IEA members).

3. What is the impact of higher electricity prices?

3.1 Households

The Institute for Government has highlighted that higher energy bills (electricity and gas) have the biggest impact on lower-income households.^[17] This is because the bills use up a greater share of their disposable income, with some households not having enough income to cover the increased cost. This can lead to households reducing their energy use or building up debt and arrears. Domestic energy costs form 6% of total household expenditure on average, but 10% for the lowest income decile. Higher energy costs can also make other goods and services more expensive when businesses pass on their own higher energy costs to consumers.

However, the Joseph Rowntree Foundation has found that concerns about energy bills are not limited to lower-income households. It reported that anxiety about affording energy bills only begins to subside when households’ incomes reach above £100,000.^[18] The charity also highlighted that energy debt has doubled since 2020 to £4.5bn, with energy bills consistently named by the public as the primary driver of the cost-of-living crisis, and the living cost that has the biggest impact on their daily lives.

3.2 Businesses

Focusing on the impact of high electricity prices on businesses, Deloitte said that the output of energy-intensive industries, including paper products, petrochemicals, metals and inorganic products such as cement, ceramics and glass, had fallen in recent years.^[19] It said that the combined output of these sectors had fallen by a third since 2021 and was at its lowest level since data collection began in 1990. However, Deloitte noted that euro area manufacturers were also increasingly relying on imports rather than domestic production of energy-intensive intermediate goods.

Industry stakeholders have spoken about how high energy prices are affecting businesses. For example, Rain Newton-Smith, head of the Confederation of British Industry, said that 40% of UK firms were holding back investment due to energy costs.^[20] She also said that they were putting a strain on private sector jobs and growth. In addition, Jim Ratcliffe, owner of the petrochemicals group Ineos, has argued that along with carbon taxes, high energy costs were “killing off” manufacturing in Britain.^[21]

4. Why are electricity prices higher in the UK?

4.1 Reliance on gas

The cost of gas shapes what households and businesses pay for electricity. This is due to a system of marginal pricing where the final and most expensive unit of supply needed to meet demand sets the price for all electricity sold.^[22] This means that if 99% of demand is met with cheaper low-carbon energy, the gas required for the remaining 1% will set the price. Electricity prices therefore rise with gas prices, even if cheaper renewable sources or nuclear provide most of the power in a given period.^[23] This means that prices are vulnerable to shocks to the international market, such as Russia’s invasion of Ukraine and the US/Israel conflict with Iran. Data showed that in the UK in 2024, the electricity market price was set by gas 85% of the time, down from 97% in 2021.^[24]

The UK is more reliant on gas when compared to other countries, which partly explains why electricity prices are higher. In 2024, gas accounted for 30% of the UK’s electricity generation compared to 16% in Germany and 3% in France.^[25] More widely, EU members produce on average almost 50% more electricity than the UK on a per capita basis. Sweden and Finland are the leaders in this area. They combine renewables and nuclear to generate around four times as much electricity per person as the UK.

Commentators have highlighted the link between high gas and electricity prices. For example, Kate Mulvany, principal consultant at the energy advisory company Cornwall Insight, argued that Great Britain’s dependency on gas imports had been “the most important factor behind higher gas and power prices in the market”.^[26] Professor Rob Gross, director of the UK Energy Research Centre, agreed, stating that gas prices are the “principal driver of our [electricity] prices”.^[27]

4.2 Decarbonisation policies and other costs

Deloitte has argued that policies designed to encourage decarbonisation have also added to electricity prices. However, it said that the effect of such policies has been “dwarfed by the impact of higher gas prices”.^[28] It said that renewables obligations, feed-in tariffs and the climate change levy collectively accounted for about 10% of industrial users’ electricity bills. Looking internationally, Deloitte reported that fewer exemptions to these costs are available in the UK compared to schemes in Germany, France and the Netherlands. In addition, it noted that in the UK, all electricity-related costs are included in customer bills. In other countries, some components are paid through general taxations. This applies to both domestic and industrial energy prices.

Carbon Brief, a news site specialising in climate science and energy policy, also considered the impact of decarbonisation policies on energy bills.^[29] It similarly found that ‘green levies’ had added to bills, though to a lesser extent than the cost of gas:

Underneath the large spike in wholesale power costs due to the “roller coaster” of international gas markets, there have also been steady increases in policy and network charges in recent years. This includes the “green levies” that support the expansion of the UK’s clean energy supplies.

Specifically, some £63 has been added to bills since 2021 as a result of rising network charges, another £18 from “green levies” and £65 from other sources.

[…] This means that network charges and “green levies” account for 20% and 6% of the rise since pre-crisis levels, respectively, compared with 54% due to higher wholesale prices.^[30]

4.3 Cost of renewables

The proportion of electricity produced by renewables in the UK significantly increased from 2.5% in 2000 to over half in 2024.^[31] The cost of renewable energy technology also decreased during this period. Despite this, Deloitte said that several factors have kept electricity bills high. First, consumers and industry are paying for renewables that came online several years ago when costs were higher. Under the contracts for difference (CfD) system, which has operated since 2014, generators were given price certainty over the 15-year lifetime of a contract.^[32] The prices agreed (known as strike prices) have fallen since the first CfD auction round, but the initial contracts are still in force. Second, land, labour and capital are major costs for renewable producers, and they have risen in price. Third, solar and wind are subject to the weather and are frequently offline. Therefore, renewables need backup capacity, storage and transmission and system balancing, which add costs to bills.

In addition, the Institute for Government noted that while renewables do not have the same security of supply issues as gas, building renewable energy infrastructure at speed is reliant on global supply chains.^[33] It also highlighted that renewables are intermittent and that an absence of significant storage capacity has meant that a source of dispatchable capacity, which can be quickly deployed to meet demand, is needed. In the UK, this is largely provided by gas.

5. What recent announcements has the government made?

5.1 Overview

The government recently announced several policies aimed at reducing electricity prices. These are briefly detailed below. It also previously included policies in this area in the 2025 autumn budget, including action to take £150 off the average household energy bill which came into effect in April 2026.^[34]

5.2 Policies to ‘break the link’ with gas prices

In April 2026, the government said that it was moving to break the link between gas and electricity prices to protect families and businesses from energy crises.^[35] It said this would be done through voluntary long-term fixed contracts, offered to existing low-carbon generators not on fixed-price contracts (around a third of Britain’s power supply). It argued that this would protect households and businesses from higher bills when gas prices spike, with contracts only offered where they deliver clear value for money.

The government also said it would increase the rate of the electricity generator levy, a temporary tax on windfall revenues for large renewables, from 45% to 55%.^[36] In a parliamentary written statement, the government explained that when gas prices are high, renewable generators that are not in receipt of CfD receive “substantial increases” in revenue because they can sell the electricity they generate at higher prices, without having new costs.^[37] Highlighting the recent conflict in the Middle East, the government said it had reviewed the design of the scheme and announced that alongside increasing the levy, it would extend it past its scheduled conclusion in 2028. It argued that this would support the government’s objective of reducing the impact of gas prices on businesses and householders. The rate increase is due to take effect from 1 July 2026.

Also in April 2026, the secretary of state for energy security and net zero, Ed Miliband, gave a speech in which he set out further measures to “help cut bills for families and deliver more clean, homegrown power”.^[38] These included providing additional funding for faster upgrades for social housing to support solar installations, extending support for solar panels for schools and colleges and streamlining planning and land rules to “unblock the grid and speed up clean, homegrown power”.^[39]

5.3 British industrial competitiveness scheme

The government announced in April 2026 that electricity bills would be cut by up to 25% for over 10,000 businesses through the ‘British industrial competitiveness scheme’.^[40] It said that the automotive, aerospace, steel and pharmaceuticals sectors are among those where eligible businesses are to benefit from a one-off additional payment in 2027. The government confirmed that no households would see their bills increase as a result of the scheme as it would be funded through a combination of changes within the energy sector and government funding.

On delivery, the government highlighted that a second consultation on the regulatory changes needed had closed in May 2026, with legislation expected to be in place in autumn 2026.^[41] This followed an initial consultation which focused on scheme eligibility and approach and closed in January 2026.^[42]

In addition, the government said that this scheme followed a £420mn boost for around 500 of the UK’s most energy-intensive businesses through the ‘Supercharger’, which took effect on 1 April 2026.^[43] This increased the discount on electricity network charges from 60% to 90% for sectors including steel, cement, glass and chemicals.

5.4 Possible future support

In response to concerns about the possibility of further energy price increases due to the war in the Middle East, Chancellor Rachel Reeves said that the government was working on contingency planning to support householders with their energy bills.^[44] She stated that the support would be targeted at “those who need it most”, ruling out the possibility of a universal approach as seen under the then Conservative government following Russia’s invasion of Ukraine.^[45]

6. Read more

• House of Commons Library, ‘What costs make up an electricity bill?’, 13 May 2026
• Institute for Fiscal Studies Podcast, ‘Why is UK electricity so expensive?’, 21 May 2026
• Carbon Brief, ‘Q&A: How the UK government aims to ‘break link between gas and electricity prices’, 21 April 2026
• BBC News, ‘Electricity bills targeted in planned shakeup to energy prices’, 21 April 2026
• OECD, ‘Energy prices are spiking again: New relief measures, old lessons’, 13 April 2026

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