Where Your Electricity Bill Goes: Wholesale, Network and Policy Costs
- Ofgem's price cap covers wholesale, network, policy and operating costs, plus supplier earnings and a risk allowance.
- Wholesale energy is around 40% of a household energy bill, according to Ofgem.
- The cap is reset every three months and only covers standard variable tariffs.
- A battery mainly interacts with the wholesale-linked part of the price, and only if your tariff passes that on.
- Network and policy costs are the same whatever time of day you use power on a flat tariff.
Only part of what you pay for electricity is the cost of the energy itself. Knowing the other parts explains why a battery can shave one slice of your bill and leave the rest alone.
The building blocks of the cap
Ofgem sets the energy price cap every three months for standard variable tariffs. Its explanation of the cap lists what it covers, and the list is a good map of any bill:
- Wholesale: the cost of buying energy on the open market.
- Network: building and upgrading the wires and pipes.
- Policy: government social and environmental schemes, such as the Warm Homes Discount.
- Operating: customer service, marketing, metering and debt.
- Supplier earnings before interest and tax.
- Headroom: an allowance for uncertain costs and risks.
- A levelisation allowance, so prepayment and Direct Debit customers pay the same standing charge.
How big is the wholesale part?
Ofgem says that wholesale energy costs make up around 40% of a household energy bill. That is a large share, but it is not the whole bill. The other roughly 60% covers networks, policy schemes, supplier costs and the rest, and those costs do not move hour by hour with the wholesale market.
For a household on a flat tariff, the price per kWh is the same at 3am and at 6pm. The wholesale cost of that kWh is not. A battery can only exploit that difference if your tariff passes some of the time-varying price on to you. We explain the tariff side in our smart meters and half-hourly settlement guide.
Why network and policy costs matter to a battery
Network and policy costs are not tied to the half-hourly wholesale price on a standard tariff. They are folded into the unit rate and the standing charge. So a battery that shifts use from the evening to the night does not reduce those parts of the bill on a flat tariff, though it can still reduce your purchases overall if it stores solar.
This is one reason honest savings estimates are modest. The part of the price that moves is a fraction of the whole, and a battery loses some energy on the way in and out. The round-trip efficiency guide shows how that loss affects the maths.
What this means in practice
The cap changes every quarter, and the split between its parts changes with it. We therefore avoid quoting a single pence-per-kWh breakdown here. Look at your own tariff for current numbers.
Before you buy, work out how much of your bill is exposed to time-of-day pricing. If you are on a fixed or capped flat tariff, a battery's saving comes mainly from storing your own solar. If you are on a smart tariff, it can also come from buying cheap and using later. How a home battery saves money covers both routes.
Common questions
Does the price cap limit my total bill?
No. Ofgem says the cap limits the unit rate and the standing charge. The total still depends on how much you use.
How often does the cap change?
Ofgem sets it every three months.
Does the cap apply to fixed tariffs?
No. Ofgem says it covers standard variable tariffs, not fixed tariffs or business contracts.
Can a battery reduce network and policy costs?
Not directly on a flat tariff. Those costs are folded into the rates you pay. A battery changes how many kWh you buy and when.
Related guides
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