The short version
General information, not advice
- Energy is bought on wholesale markets, often months ahead, then sold to you by a supplier.
- Pipes and wires are run by separate network companies, paid through your bill.
- Gas often sets the price of electricity, which is why gas prices move both bills.
- Ofgem's price cap limits unit rates and standing charges on standard tariffs. It doesn't cap your total bill.
Work through the six steps below at your own pace. Each one is interactive, so the ideas stick without any jargon.
1. Electricity is made the moment you use it
There is no giant battery for the whole country. So the amount made has to match the amount used every single second. When you switch things on, somewhere a power station makes a little more.
They always have to match.
From power station to plug
Five links in the chain. Your supplier is in the middle, buying from one side and paying the other.
Of a typical bill this winter, about 47% pays for the energy itself and 24% for the networks (Ofgem, cap for 1 October to 31 December 2026).
Why gas sets the price of electricity
Britain’s electricity is sold in a market where every generator gets the same price at any given time: the price of the most expensive plant needed to meet demand.
Wind, solar and nuclear are cheap to run once built, so they’re used first. On most days they aren’t enough on their own, and gas plants fill the gap. Because the last plant switched on sets the price for everyone, a jump in gas prices pushes up electricity too, even on a windy day. It’s also why suppliers failed in 2021 and 2022. They had promised customers fixed prices without buying enough energy in advance, and when wholesale gas soared they were selling below cost.
Where the price cap fits
The cap is a limit, not a price. Ofgem resets it every three months from what the chain above costs: wholesale energy, networks, government schemes and a supplier’s running costs. It limits the unit rate and daily standing charge on standard variable tariffs. It doesn’t limit your total bill, because the more you use, the more you pay. Fixed tariffs aren’t covered by the cap. They can sit above or below it.
For the wholesale part, Ofgem looks at forward prices over a 3-month window that closes about 1.5 months before each cap starts, averaged over the next 12 months. So a change in wholesale prices can reach the next cap or the one after.
Source: Ofgem, wholesale methodology decision (August 2022), checked 4 October 2026.
- £1,723 typical dual fuel bill a year, 1 October to 31 December 2026
- Every 3 months when Ofgem resets the cap. The next change is 1 January 2027
- 0% VAT on electricity from 1 October 2026 to 31 March 2027. Gas stays at 5%
Source: Ofgem, price cap 1 October to 31 December 2026, and its summary of changes.
0% VAT on domestic electricity from 1 October 2026 to 31 March 2027: HMRC Revenue and Customs Brief 10 (2026) and SI 2026/987, checked 4 October 2026. Great Britain only; in Northern Ireland the rate is unchanged.
See it step by step
From the wholesale market to your bill
Step 1 of 6
A long chain
Your bill is the end of a long chain. Energy is made by generators and gas producers, traded on wholesale markets, bought by your supplier and carried to your home through pipes and wires.
Your supplier sits in the middle, buying from one side and paying the other.
Most of what you pay is decided a long way up the chain, months before the gas reaches your boiler.
Figures from the Switch4Good guide, How energy markets actually work, checked 4 October 2026. Cap timing follows Ofgem's method: a 3-month observation window ending 1.5 months before each 3-month cap, over a 12-month forward view (Ofgem, wholesale methodology decision (August 2022); Ofgem, backwardation decision (November 2025), checked 4 October 2026). The price index is invented and the model is illustrative.
Sources, checked 26 September 2026: Ofgem: price cap, October to December 2026. Switch4Good Limited is a commercial business and not a charity. General information, not advice.
Common questions
Is the price cap a fixed, cheap price?
No. Every three months Ofgem adds up the underlying costs and sets the most a supplier can charge a typical home. It stops overcharging, but it still rises when the energy itself costs more.
Does shifting when I use power always save money?
Only on a time-of-use or smart tariff. On a fixed or standard variable tariff the unit rate is the same all day, though using cleaner, windier hours still cuts pollution.
Can you beat the cap?
Fixed tariffs can undercut it. Compare them through Switch4Good: the price is the same as going direct, and at least 50% of eligible commission goes to the cause you choose.