Price cap: Gas price still adding £300 a year to energy bills
From 1st October, wholesale costs of energy remain over £300 higher per year per household compared to pre-crisis levels, equal to £7bn for the whole UK
By Dr Simon Cran-McGreehin
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As Ofgem’s new energy price cap comes into force on 1st October, new analysis from the Energy and Climate Intelligence Unit (ECIU) shows that wholesale costs are adding over £300 to the typical dual fuel household bill compared to pre-gas crisis levels, adding up to a total of £7bn annually for all UK households. This enduring impact is a direct consequence of the UK’s exposure to volatile international gas markets [1].
The wholesale part of gas bills is still £180 higher than the four years prior to the Russian invasion of Ukraine, as a direct consequence of price volatility on international gas markets. These elevated gas prices are also responsible for almost all of the extra £120 seen on the wholesale part of the electricity bill.
Network costs are £130 higher, including £55 for gas grids. The extra £75 for electricity networks include the costs of connecting up new renewables that are helping to reduce our use of gas power plants whose prices are set by international gas prices, and the capacity market for back-up supplies has added £10. These higher gas costs are also responsible for part of the increasing costs of balancing intermittent renewables, although increases can be limited by better use of storage such as batteries. Inflation triggered by the invasion pushed up some network costs, and this impact has worked through onto bills.
Policy costs are also up by £65 compared to pre-crisis, of which over half (£34) is to support households and heavy industry to cope with high bills, and almost half (£28) is to fund energy efficiency upgrades to cut bills for low-income households. Levies for renewables are just £1 higher than they were, with CfDs now integrated into wholesale costs. Suppliers’ operating costs and similar factors have added £100, and VAT adds £30.
Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU), said:
"For many households the struggle with rising bills continues this winter after years of price spikes and volatility. The gas price crisis also persists through the millions of pounds of debt from unpaid bills.
“Upgrading our national grid, which has suffered from decades of underinvestment, will in turn enable more British renewables to power our homes and businesses. This reduces our exposure to international gas markets where the price fluctuates in response to events such as Putin’s invasion of Ukraine and trouble in the Middle East.
“The transition to clean net zero technologies like heat pumps will also cut our dependence on gas price volatility while also helping to bring our climate back into balance.”
Despite a significant fall from the peak of the energy crisis, wholesale gas prices have not returned to their pre-crisis average levels [2]. This is due to a combination of persistent geopolitical instability and the market's fundamental volatility. The UK's reliance on imported gas, which just like UK gas is sold at prices dictated by volatile global markets, will rise as the North Sea continues its inevitable decline. North Sea gas production is currently projected to decline by 59% by 2030 with no new drilling, compared to 52% with new drilling [3].
The regulator has confirmed that the reasons for the price cap increasing from July to October this year include expanding the Warm Homes Discount which provides energy bill payments for low-income households, with two-thirds of the £35 rise unrelated to net zero [4].
While the headline price cap figure has decreased from its height, and network costs may be rising to future-proof the grid, wholesale costs remain the primary driver behind higher bills compared to pre-crisis. This has a lasting effect on household bills with 10 million estimated to be living in fuel poverty in July 2025 [5]. In addition, energy companies are still having to pass on costs from the crisis, as they had to buy some of their energy at peak prices to ensure continuity of supply.
Notes to editors:
1. ECIU analysis costs in Ofgem’s dual fuel price cap for October 2025 compared to pre-crisis average price caps (2018 to 2021). Note that totals do not sum, due to rounding. Estimate of total cost to UK households is based on c.24million homes being in Profile Class 1 (i.e. using typical amounts of gas and electricity), and the remaining c.5million homes being in Profile Class 2 (i.e. using no gas but higher levels of electricity).
2. Pre-crisis gas prices were around £16/MWh, which even once accounting for inflation are not as high as the £27/MWh prices seen currently on the day-ahead markets. Prices have fallen significantly from the peak levels of £800/MWh seen during the crisis. Trading Economics (adjusted using the Bank of England’s Inflation Calculator): https://tradingeconomics.com/commodity/natural-gas
3. North Sea Transition Authority: https://www.nstauthority.co.uk/data-and-insights/insights-and-analysis/production-and-expenditure-projections/ Please note that the reductions in production from 2024 to 2030 now noted in this press release are based on the most recent version of the NSTA projections (issued in August 2025), whereas the initial text stated values based on an earlier version (issued in October 2024).
4. Ofgem price cap: https://www.ofgem.gov.uk/press-release/energy-price-cap-will-rise-2-percent-october
5. National Energy Action: https://www.nea.org.uk/energy-crisis/
For more information or for interview requests:
George Smeeton, Head of Communications, ECIU, Tel: 07894 571 153, email: george.smeeton@eciu.net