According to official figures, the average electricity bill in the UK was around £764 per year for 2021—but it will be significantly higher in 2022. In fact, the energy price cap rose from 1 April 2022—so we're now officially impacted by the higher cap—which means that households on default tariffs paying by direct debit will see an increase from £1,277 to £1,971 per year for both gas and electric (an increase of around £693 or 54%). These figures translate into unit costs of £0.28 per kWh for electricity and £0.07 per kWh for gas for 2022.
This article will explain what we know about current unit costs for electricity in the rapidly changing market. We'll also discuss historical electricity cost data so you can see just how much prices have risen, as well as see differences by region, household consumption and depending on how you pay: credit, direct debit or prepayment.
In the current market, if you're on a default rate which is set by the government’s energy price cap then you theoretically may find better value tariffs. If you're thinking of switching read our Energy Switching Guide and click below to sign up to an alert to keep up to date on market changes. This can help you to ensure you’re paying as little as possible. But be aware that energy comparison providers across the board have paused their energy comparison so all you can do now is sign up to get an alert when deals are back (as you can do by signing up to our newsletter below).
Unit Cost of Electricity per kWh, by UK Region
According to the latest Department for Business, Energy & Industrial Strategy data, average UK electricity prices per kwh were 18.9 p/kWh for 2021, but will be closer to 28 p/kWh for 2022 based on the new price caps—and location matters, with electricity prices ranging from 25.8 p/kWh in the North East to 28.2 p/kWh in Merseyside & North Wales and London (the April 2022 average price cap unit rates for a customer with typical usage, paying by direct debit).
|Area||Average variable unit price in 2021 (p/kWh)||Estimate for 2022 based on April price cap (p/kWh)|
|Merseyside & North Wales||20.2||28.2|
Although for a number of years, Yorkshire has been home to the cheapest unit electricity rates; residents paid around 4% less than the average electricity cost per kWh in 2021.
Current and Historical Energy Prices in the UK
Starting in April 2022, default energy tariffs for those paying by direct direct will cost £0.28 per kWh, indicating an increase of roughly 50% compared to last year. The unit cost for electricity in the price cap ending 31 March 2022 was just £0.21 per kWh (and in terms of what people actually paid, which will be less than the cap, customers with typical usage paying by direct debit paid on average £0.185 per kWh in 2021).
|Average price cap unit rates for typical usage (direct debit)||1 October 2021 - 31 March 2022||1 April - 30 September 2022|
|Electricity||£0.21 per kWh||£0.28 per kWh|
|Gas||£0.04 per kWh||£0.07 per kWh|
While it's hard to miss the energy price explosion in the past few months, in fact, energy prices have been rising for the past few years. For example, average unit costs had already risen a remarkable 67% from 2017 to 2021. This historical average unit cost data is based on total bills as produced by the Department for Business, Energy & Industrial Strategy. We've used these figures which are based on fixed consumption rates to look at how unit electricity prices have changed over time, but since they are based on a fixed consumption rate you'll notice they differ from the figures shown in the region-by-region analysis shown further on in the article.
|Year||Unit cost (pence per kWh)|
*Note: the Department for Business, Energy & Industrial Strategy changed their calculation of bills from being based on fixed consumption levels of 3,800 kWh per year for standard electricity to 3,600 kWh per year. The data from 2010 to 2016 reflects 3,800 kWh per year consumption and the data from 2017 onwards reflects 3,600 kWh per year consumption.
^The figure shown for 2022 is the average price cap unit rate for a customer with typical usage paying by direct debit. The actual figure for 2022 will differ and can only be known after the year has finished.
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More Recent Energy Price Rises
The data above is historical, but in the current environment most of us want to know what's happening with energy prices now—and where they'll be in the future. A good tool for that is checking futures prices. Futures prices tell you where the market is pricing something in the future. (Read more about futures contracts at the end of the article, if you're interested.)
Let's consider the futures prices for UK natural gas. (Why natural gas? Electricity generation in the UK comes from many sources, such as natural gas, coal and renewables. Natural gas is the largest contributor to UK electricity generation, so rising natural gas prices have a big impact on electricity prices.)
We could look at the March 2022 natural gas futures in the UK to get an idea of what prices are expected to be in March 2022. Or we could check December 2022 natural gas futures to see if prices for next winter are expected to be as bad as this winter.
As you can see, the futures prices indicate that natural gas prices are expected to generally trend down from here in the year, but it looks as though it will take a few years to return to previous prices, which will not help people struggling to pay their bills today.
Another reason that energy prices feel very high right now is that we'd gotten used to lower electricity bills during the pandemic. With demand lower, prices dropped. Now, the rising prices feel even more shocking coming off of such low rates.
Why are energy prices so high right now?
Energy prices are high around the globe. It's not just the UK suffering from higher energy prices. There are a number of factors at play. Here's a quick overview:
- Increased demand. The economic recovery post pandemic has resulted in increased demand for energy, which in turn leads to higher prices.
- Weather affecting renewable energy sources. Summer of 2021 was less windy in Europe; simultaneously there have been droughts in Brazil—both of which led to less renewable energy storage (turbine and hydropwer, respectively).
- Weather affecting energy consumption. A hotter summer in Asia and a colder winter in Europe has led to increased energy consumption around the world (e.g. air conditioning in Asia, heating in Europe).
- Gasprom. The Russian gas giant did not replenish European storage sites as much as normal.
- Operational issues. Not all regular maintenance was able to be performed during the pandemic, which led to systems being down, supply issues, project delays, etc.
However, rates vary according to how you pay. While Northern Ireland tops the charts for highest prices for direct debit options, those living in Merseyside & the South West paid the highest prices for electricity bills that work on credit (i.e. you pay when you receive your bill, typically every three months) and prepayment.
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Compare Energy Prices
What do these prices mean in terms of annual energy bills? In the following chart, we compare the cost per year of the cheapest and average standard variable energy prices for large legacy suppliers and other suppliers to give you an idea of what households pay in total for their fuel—these prices reflect dual fuel rates for both gas and electric.
Note: the current energy cap (i.e. the maximum a utility company can charge an average customer each year for their electric and gas) of £1,277 was set on 6 August 2021 and is set to rise again on 1 April. According to Ofgem this cap will rise 54%, bringing the new cap to £1,971 per year for those paying by direct debit.
These bills reflect usage of 12,000kWh/year for gas and 2,900kWh/year for electricity. A standard variable tariff is an energy supplier's basic offer, and it does not have a fixed end date. The baskets reflect a simple average of the 10 cheapest tariffs available when comparing the market.
Standing (Fixed) Charges for Electricity in the UK
Residents of North Scotland pay the highest standing charges in the UK: £99.28 per year, which is 17.3% more than the UK average. A standing charge is like the line charge on your telephone—it's a fixed cost you'll pay regardless of how much energy you use.
The 2nd highest standing charges are in Yorkshire (£92.36) and the North East (£90.00).
Northern Ireland is the only area in the UK where you don't pay a standing charge on standard electricity contracts (however, time-of-use contracts like Economy 7 may have a standing charge in NI).
|Area||Average fixed cost (£/year)|
|Merseyside & North Wales||£81.6|
Here's How Your Electricity Costs Change with Payment Type
How you pay for electricity (i.e., credit, direct debit or prepayment) will affect both your variable unit charges and your standing charges.
What's the cheapest way to pay for electricity?
Paying with a regular direct debit has historically been the cheapest way to buy electricity in the UK for quite a while; that is, direct debit contracts have the lowest variable unit prices on average.
Interestingly, prepayment meters used to have the highest standing (fixed) charges, costing households an additional £20 per year vs. paying via direct debit back in 2017. However, the highest charges for electricity (both variable and fixed) are now paid by those using credit (paying by "credit" is when you get a bill from your supplier which you then pay with a cheque, cash, credit card, etc.). In fact, average variable charges cost 9% more and fixed charges cost 22% more when paying by credit than paying by direct debit.
Please keep in mind that these are historical figure for 2021 shown to illustrate the differences in payment method. They do not reflect current electricity prices.
|Payment type||Credit||Direct debit||Prepayment|
|Area||Avg unit price (p/kWh)||Avg fixed cost (£/year)||Avg unit price (p/kWh)||Avg fixed cost (£/year)||Avg unit price (p/kWh)||Avg fixed cost (£/year)|
|Merseyside & North Wales||21.7||£97.0||19.7||£80.8||20.9||£73.2|
If you're in a position to pay via direct debit, that has traditionally been the cheapest option. If you're looking to save money on your electricity bills, avoid paying via credit as this is now the most expensive payment method in terms of both variable and fixed costs. Those wanting to save can switch tariff or supplier. To learn more, see our guide on Energy Switching.
Are Standard or Economy 7 Electricity Rates Cheaper?
Economy 7 tariffs have cheaper night rates by 41.3% vs. a normal, single rate Standard tariff, but the Economy 7 standing charges are 5.2% higher and the day rates are 16.7% higher. Please note that these are historical prices for 2021 and current prices will be higher.
|Standard vs. Economy 7 Tariffs||Avg unit DAY price (p/kWh)||Avg unit NIGHT price (p/kWh)||Avg fixed cost (£/year)|
Can you actually save money with an Economy 7 tariff? Using the figures above, if you could manage so that half of your electricity usage occurred during the 7 off-peak hours, you'd pay an average on 16.6 p/kWh for electricity on an Economy 7 tariff, which is in fact 12.3% cheaper than the Standard rate of 18.9 p/kWh. But keep in mind that while you might be able to run your dishwasher and dryer during the "night" hours which vary but typically run from 11pm to 6 am, your fridge runs all day and you're most likely to use lights, your oven, your kettle and other high-energy appliances during the "day" hours.
- Standing charges are 5.2% more expensive on Economy 7 tariffs than Standard tariffs
- Day unit charges are 16.7% more expensive on Economy 7 tariffs than Standard tariffs
- Night unit charges are 41.3% cheaper on Economy 7 tariffs than Standard tariffs
In a recent test Ofgem found that households saved £263 on average per year by switching.
How do futures contracts work?
Futures contracts can be confusing, so here's a quick overview. A futures contract is an agreement to buy or sell something (e.g. a commodity or stock) at a predetermined price at a specified time in the future. A futures contract will be for a certain month and year (e.g. March 2022) and the price of that contract indicates what the market thinks the underlying will be trading at in that future month. For example, there'll be a contract for March 2022, one for April, 2022, one for May 2022, and so on. The market trades each of these up until the last trading day of the month before, when the contract expires. So, for example, the March 2022 contract will be traded until the end of February 2022.
If you pick a far-out contract, the price for that contract today tells you where the market anticipates the price will be during the month of that contract. If you pick a nearby contract, the futures price essentially gives you more of a current market price. The futures price converges towards the current price, the closer you get to the contract month—this is because there's less guess work involved the closer you get.
And we can use historical futures prices to see what energy prices have been doing up until the current date. For example, we can look back to July 2021 futures prices to see what natural gas was essentially trading at in July 2021. (Futures prices essentially become current prices once you pass the expiration date of the contract.) This is useful for seeing, for instance, how much prices popped up in November/December 2021 compared to prices over the past couple of years.
Note: The ICE UK natural gas futures contracts used in this article reflect the GBP contract price for 1,000 therms of natural gas per day (1 therm = 29.3071 kilowatt hours) per delivery period (e.g. month).