From power station to plug

Most of the electricity from Britain’s power stations is sold in bulk on the wholesale market, where suppliers buy it to sell on to homes and businesses.

Prices there are quoted per megawatt-hour (MWh), or 1,000 units, so £100/MWh works out at 10p a unit.

Roughly speaking, each station offers to sell at a price that covers its running costs, and the cheapest offers are accepted first until there’s enough to meet demand. So every station selling at that moment is paid the price asked by the last station needed.

Gas plants cost more to run than wind farms or nuclear stations because they have to buy fuel and pay for the carbon they emit. Since a gas plant is the last station needed most of the time (exactly how often is disputed), the wholesale price tracks what it costs to run a gas plant over the year as a whole.

Over the 12 months to September the wholesale price averaged £95/MWh, just under the £98 it cost to run an efficient gas plant.

On windy days the price fell well below that, to a daily average of £26/MWh on Saturday 19 September.

How wind and solar are paid

Wind and solar farms sell into the same market, but what they end up earning depends on the deal they were built under.

According to the UK Energy Research Centre (UKERC), most of Britain’s electricity in 2024 was paid the market price and nothing more. Older wind and solar farms and biomass plants under the Renewables Obligation (RO), a subsidy scheme, earned the market price plus certificates paid for through a levy on bills. Only about a tenth, mostly offshore wind, was sold at a fixed price under a contract for difference (CfD).

UKERC expects the share paid the market price, close to 90% in 2024, to fall to about 60% by 2028 as more CfD plants come on stream.

A generator on a CfD gets an agreed price, and a levy on bills makes up the difference whenever the market price is lower. When the market price is higher, the generator pays the difference back. CfD generators did that in 2022, when gas prices soared.

On this winter’s forecasts, CfDs add about £13 a year to the typical bill. The energy regulator Ofgem includes that in the cost of the electricity itself, not in the government schemes.

When gas sets a high price, older wind farms, nuclear stations and other plants paid the market price earn well above their running costs, while plants on CfDs hand the extra back.

Homes buy their electricity from a supplier such as British Gas, Octopus, EDF or E.ON. Suppliers buy most of their power months ahead, so most of their costs are fixed before they set their prices.

The power travels over the high-voltage national grid – owned by National Grid and others – and then over a local network such as UK Power Networks, both of which are privately owned and regulated by Ofgem.

The government-owned National Energy System Operator (NESO) keeps supply and demand balanced second by second, and Elexon works out who owes what for each half-hour. NESO and Elexon, like Ofgem, are paid for out of the network and industry charges that suppliers pay.

Once it’s on the wires, electricity from every power station mixes – there’s no sending one station’s output to one home – so the contracts and the money follow a route of their own.

Each home pays one bill to its supplier, which in turn pays the generators it bought from, the network companies and the government schemes.

Beyond this usual route, a few businesses buy differently. Some sign a long-term deal directly with a wind or solar farm, some take power straight from a small generator, and some use one of the newer energy companies, such as Tem and UrbanChain, that match renewable generators with businesses. On every route the power still travels on the same wires and pays for them (how the other routes work).

What each of them adds

The electricity is only the first line of Ofgem’s breakdown of the bill. The wires, the government schemes and the supplier’s running costs all have to be paid for whatever the wholesale price does, whether the power comes from a wind farm or a gas plant.

Ofgem sets an allowance for each of these lines every quarter. It uses them to cap the unit rate and standing charge on standard variable tariffs, the default for anyone who hasn’t chosen another deal. Fixed deals aren’t capped. The cap limits the rates rather than the total bill, which still goes up with use.

Since last year the power itself on a typical bill has gone up by about £77, and the network and supplier costs have risen too. The government schemes cost £74 less, though, mostly because of the change to the Renewables Obligation. Taking the 5% VAT off for the winter saves another £40.

The standing charge

Some of these costs are charged by the day rather than by the unit, through a standing charge that suppliers set within the cap. On this winter’s typical tariff the standing charge is 54.83p a day on top of 26.32p a unit, owed even on days when nothing is used: £200 a year, or about £17 a month for a flat that’s standing empty.

About 63% of it pays for the wires and 32% for running the supplier. It also varies by region. London has the lowest and North Wales and Merseyside the highest, about £90 a year more (by region).

Ofgem’s own figures show the standing charge more than doubling, from £86 a year in October 2021 to £219 in July 2024. Most of the jump came in April 2022, when a 2019 Ofgem decision known as the Targeted Charging Review moved the networks’ fixed costs out of the unit rate and into the standing charge.

Ofgem says it cannot remove these costs and “can only move [them] from one part of the bill to another”. Since June four large suppliers have been trialling the reverse move, lower standing charges with higher unit rates (the trial).

The standing charge weighs most on homes that use little. A home using 4,000 units a year spreads it over more units and pays about 31p a unit all in. At 1,000 units a home pays less in total, but 46p a unit.

Your own bill shows your unit rate and standing charge, and the usage chart works out what this winter’s typical rates add up to at any level of use.

Windy days and the bill

On a windy day like 25 March 2026, when the wholesale price fell to £7/MWh, the low price hardly shows on a household bill.

Windier years do feed through to bills, but months later, because the cap follows forward prices set well in advance.

When Ofgem announced this winter’s cap on 26 August, it said the electricity wholesale allowance was going up 10%. Ofgem put that partly down to low wind and tight supplies across Europe, which had “led to an increased reliance on gas fired generation”.

What would make bills fall?

Some changes already under way could lower bills and others will raise them. They happen at different times between now and 2037 and are measured in different ways, so they can’t simply be added together.

Your bill pays the government schemes and everyone on the way to your plug, from the power station over the grid and a local network to the supplier. The power station’s share falls as more cheap power is sold at fixed prices or replaces gas in setting the price.