What is the Average Cost of Electricity per kWh in the UK?

Written by

Inemesit Ukpanah

Last updated

17 April 2024

For several reasons, understanding the average electricity cost per kilowatt-hour (kWh) in the UK is crucial. It allows consumers to make informed decisions about their energy usage, helps businesses plan operational costs, and provides insights into the country’s energy market dynamics.

In 2023, the UK experienced notable changes in its energy market. The cost of electricity per kWh was 27p, with the Energy Price Cap (EPC) set at £1,923 per year for a typical household. However, it’s important to note that this cap applies to the unit cost per kWh, not the total amount paid. Therefore, households with higher energy usage would pay more than the capped amount. 

The fluctuations in energy prices had significant impacts on consumers. According to a survey conducted in November 2023, nearly half of the adults in Great Britain were using less fuel in their homes due to the rising cost of living. Additionally, 38% of adults who pay energy bills found them challenging to afford. 

Factors, including limited gas reserves, environmental limitations, and high demand for liquified natural gas from Asia, influenced the energy market 2023. These factors led to soaring energy prices, with the average electricity bill in the UK rising from £764 in 2021 to nearly £2,000 in 2022. 

Looking ahead, energy prices are expected to rise again in January 2024 due to typical seasonal fluctuations in energy demand. The Energy Price Cap is set to increase to £1,928 per year for a typical household from 1 January 2024, which translates to a per kWh cost of 28.6p for electricity. 

As we move into 2024, we must continue monitoring these trends to navigate the ever-changing energy landscape. effectively

Average Cost of Electricity per kWh in the UK for 2023

In 2023, the average cost of electricity per kWh in the UK was 27p. Various factors, including the wholesale cost of energy, operational costs for energy suppliers, and government policies, influence this cost. One such policy that significantly impacted the cost of electricity in 2023 was the Energy Price Cap (EPC).

The EPC was set at £1,834 a year for a typical household. 

The EPC was initially introduced with the best intentions of protecting consumers from being overcharged. However, it has been argued that the EPC has gone far beyond its intended purpose and is actively harming competition. 

The EPC now functions not as a price cap but as the de facto price for almost every consumer, covering 29 million households. This has resulted in significantly higher prices for consumers and has driven inflation. 

The Centre for Policy Studies report emphasises the importance of rethinking the EPC’s role. Here is a table summarising the energy price cap in each quarter. 

Will Energy Prices Fall in 2024?

While there are predictions of a decrease in electricity prices later in the year, the immediate outlook for 2024 suggests a rise in energy costs for UK households. 

The energy price cap, which limits the maximum amount suppliers can charge households for each unit of gas and electricity, is set to rise from £1,834 to £1,928 a year in January, pushing average household bills up by 5%. However, the price cap is expected to fall back to £1,800 for the rest of 2024.

Some experts predict that prices will start falling again in April 2024, with the price cap potentially sitting around £1,816 in April and falling slightly again to around £1,793 in July. However, the immediate impact on consumers is concerning. Many households are already struggling with energy costs, with around 41% finding it difficult to afford payments.

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Regional Variations in Electricity Costs

Electricity costs in the United Kingdom vary significantly by region. This variation is influenced by several factors, including supply and demand, the cost of distributing energy, and the amount of power used for heating in colder regions. 

The cost of electricity is a significant component of household expenses, and understanding these regional differences can help consumers make informed decisions about their energy use.

Why They Vary Across Regions in the UK

A combination of factors determines electricity costs. The most significant single factor is the wholesale cost of gas and electricity, about 40% of the overall price.

The next-largest factor is network costs, which are the energy distribution costs. Other fees include operating costs (your supplier’s overhead), VAT, markup, and costs relating to green energy subsidies that energy companies must pay by the government.

In areas with fewer people, the per-unit cost is driven up.

Conversely, in densely populated regions, energy companies can buy from generators in bulk, which tends to lower the price per unit. 

The cost of distributing energy also varies by region, with areas that use more electricity for heating, such as North Scotland, having higher distribution costs. Customers use more electricity for heating, which is factored into the distribution costs.

Despite these variations, it’s important to note that the UK has recently seen some stability in wholesale electricity prices. Even with a 5% increase in the price cap announced for January 2024, average electricity prices are much cheaper than they have been.

Detailed Comparison of Electricity Costs in Different Regions

In 2023, the most expensive average electricity bill was found in London, with an average electricity unit rate of 28.43p per kWh.

On the other hand, Yorkshire had the cheapest electricity, with an average cost of 26.52p per kWh.

Here is a detailed comparison of electricity costs in different regions of the UK as of January 2024:

It’s important to note that these costs can fluctuate due to changes in wholesale energy prices, government policies, and other factors. Therefore, consumers are encouraged to regularly compare electricity prices to ensure they get the best deal for their region. 

Comparison with Previous Years (2021-2023)

The UK’s electricity cost has been a significant concern recently, with prices rising above the historical average between 2021 and 2023.

In 2021, the overall selling value of UK energy was £69.7 billion, marking a 23% increase from the previous year. This trend continued into 2022, with the UK experiencing a significant energy crisis that saw annual household bills rise from around £1,000 to over £3,500 in October 2022. 

This crisis was driven by various factors, including increased demand during the post-COVID reopening of economies, Russia’s invasion of Ukraine, and a subsequent squeeze on gas supplies into Europe. 

By 2023, energy prices had stabilised somewhat but remained double what they were at the start of 2021. The average electricity bill in the UK as of 1 October 2023 was £738.45 per year, and the average gas and electric bill for a typical household with median usage was projected to be £2,020 per year in early 2024. 

However, the UK’s energy regulator, Ofgem, has set the average electricity bill for a typical household paying by direct debit will be £772.74 per year from April 1 to June 30, 2024. This is based on the new energy price cap set at 24.5p per kWh for electricity, with a daily charge of 60.1p. 

UK Electricity Prices Update as of April 2024

The landscape of electricity pricing in the United Kingdom has seen a significant update as of April 1, 2024. Ofgem, the UK’s energy regulator, has announced changes to the energy price cap, which sets the maximum amount that energy suppliers can charge customers for each unit of electricity and the standing charge. 

As of April 1, 2024, the energy price cap has been reduced, marking a notable decrease in consumer electricity costs.

The average unit price per kilowatt-hour (kWh) for customers on the default tariff (Standard Variable Tariff or SVT) is now capped at 24.50p for electricity, with a daily standing charge set at 60.10p. This represents a reduction from the previous cap set between January 1 and March 31, 2024, where the unit rate was 29p/kWh for electricity, and the daily standing charge was 53p/day.

The reduction in the energy price cap means that the average annual cost for a typical household paying by Direct Debit has decreased to £1,690, which is £238 lower than the previous cap of £1,928. It is important to note that the amount households pay will depend on their energy consumption, location, and type of meter used.

UK as of April 1, 2024, the following table outlines the average unit rate and standing charge for each region:

Factors Influencing Price Changes

Several factors have contributed to these significant price changes. One of the main drivers has been the UK’s dependence on gas for heating and electricity generation. The cost of buying gas, which is heavily used in electricity production, has increased, leading to higher electricity production costs that are then passed on to customers.

However, the introduction of Ofgem’s energy price cap in January 2019 led to most suppliers basing their standard variable rate tariffs on the unit rates capped by the price cap. This led to a maximum price that most suppliers can charge for each unit of gas and electricity, which increased by 12% in October 2021 and 54% in April 2022 and was due to increase by 80% in October 2022.

Another factor is market dynamics, such as competition among energy suppliers, which have also influenced prices. As suppliers compete for customers, they need to balance the need to offer competitive prices with the need to cover their costs and remain profitable. 

The table below shows the average electricity cost per kWh for (2021-2024) in the UK:

Price Cap History and Percentage Variation

The energy price cap has seen a series of increases and decreases since its inception. Here is a summary of the cap amounts and their percentage variations according to Ofgem

Average Energy Bills By House Size

Understanding the average energy bills by house size can provide valuable insights into your energy consumption and costs. By comparing your bills with the average for your house size, you can identify if you are using more or less energy than expected and take steps to manage your energy usage more effectively.

According to Ofgem, the average British household of 2-4 people uses 2,700 kWh of electricity and 11,500 kWh of gas. However, these figures can vary significantly depending on the size of the house and the number of people living in it.

Here is a detailed breakdown of the average annual consumption and cost for different house sizes:

Electricity Costs and Payment Type

A combination of factors determines electricity costs. The cost of generating electricity, the price of buying energy from generators, and the fees charged by local distribution networks all play a role. 

Payment Types

When paying for electricity, consumers in the UK have several options. These include:

• Direct Debit: This is the most common payment method. Customers pay a fixed monthly amount based on their estimated annual usage.
• Standard Credit: Customers receive a quarterly bill and pay the total amount within a specified period.
• Prepayment: Customers pay for their electricity in advance by topping up a meter. This can help manage budgets but is often more expensive than other payment methods.

Comparison of Payment Types

Each payment type has its advantages and disadvantages. Direct debit offers convenience and can often lead to discounts, but it requires careful management to avoid overpaying or underpaying. Paying on receipt of the bill gives more control over when you pay, but it can lead to larger, less manageable payments.

Prepayment offers the ability to pay as you go, but it can be more expensive and requires regular top-ups.

What Electricity Tariffs Are Available?

Understanding the different types of electricity tariffs can help you decide your energy use. Whether you’re looking for flexibility, price stability, or the ability to manage your budget, a tariff can meet your needs. 

Future Trends and Predictions

The UK is facing a challenging year ahead, with energy bills expected to rise significantly. Factors such as limited gas reserves, strong Asian LNG demand, low wind generation, and rising carbon prices increase energy costs. 

As we step into 2024, many are wondering: what will the energy bills look like in the UK? 

Analysts at Cornwall Insight predict Britain’s wholesale power prices will rise from an average of £96.64 per megawatt-hour in 2023 to £129/MWh in 2024 due to higher gas prices triggered by geopolitical events. This means an increase from £1,834 a year to £1,923 based on average use, up 4.9% from the current level. 

Several factors are influencing these fluctuations. The susceptibility of UK energy prices to external factors, such as geopolitical risks and global events, can lead to spikes in energy prices. The rise in energy prices will likely put additional pressure on many households, particularly during the colder months.

The Office for National Statistics also reported that the gas price in October 2023 was around 60% higher than two years previously, while the price of electricity was 40% higher. This increase in the price cap highlights the vulnerability of UK energy prices and customer bills to geopolitical events. 

Factors Contributing to the Increase in Energy Costs

The UK is particularly exposed to the worldwide energy crisis due to its dependence on gas for heating and electricity generation and poorly insulated housing stock. Also, a steep rise in the wholesale price of gas has driven up the amount energy providers pay for gas and electricity, which is now being passed on to the consumer. 

Other factors contributing to the UK’s energy costs are:

1. Limited gas reserves: Gas storage in the EU is at a 5-year low, increasing the gas price due to its limited supply.
2. Strong LNG demand from Asia: Asia, particularly China, has been importing vast amounts of liquified natural gas, increasing global gas prices.
3. Low wind generation: When wind generation is low, the UK must use more coal and gas-fired to produce sufficient electricity, increasing gas demand and prices.
4. Carbon prices: Carbon prices have risen from £15 to £90/tonne in 18 months due to increasing participation in the carbon trading scheme and governments setting net-zero targets.

How Much Will Electricity Cost Per kWh in January 2024?

The cost of electricity, measured per kilowatt-hour (kWh), is a significant consideration for consumers, impacting household budgets and business operating costs. As we look ahead to January 2024, many wonder how much electricity will cost per kWh. Electricity costs per kWh are set to rise.

According to Ofgem, the UK’s energy regulator, the previous unit rate for electricity in January 2024 was 29p/kWh. This is a slight increase from the previous rates, driven ‘almost entirely by rising international wholesale energy market costs due to market instability and global events.’

The average daily standing charge, the fixed cost consumers pay regardless of how much electricity they use, will be 60p/day. This represents an increase of around 5p per day from the previous rates.

The electricity prices will undoubtedly impact consumers. Annual energy bills for a typical dual-fuel household paying by direct debit will be around £1,690. This represents a decrease of £238 per year compared to the previous cap amount

This increase comes when the UK is still amid an acute energy cost crisis, as it has been for the past two years. The rising energy prices and the escalating climate emergency underscore the need for large-scale energy efficiency and demand reduction solutions to reduce energy bills, improve energy security, and lower carbon emissions. 

As we continue to invest in and transition towards renewable energy, we can expect to see a reduction in electricity prices over time. This transition benefits consumers by potentially lowering energy costs and contributes to the global effort to combat climate change.