A practical guide to energy procurement: Understanding your energy bill

Most organisations have a reasonable understanding of the total amount they pay for energy, but fewer have a clear picture of why they pay what they do.

That’s often because the structure of commercial energy bills has changed, and what drives cost today is not the same as what drove it three or four years ago. That means procurement decisions based on older assumptions can leave a significant share of the bill unmanaged.

Where do costs come from?

For much of the past decade, the wholesale cost of electricity made up the majority of a commercial energy bill. Historically, that figure sat in the region of 60 to 70 per cent, so a well-timed contract renewal or choosing a competitive unit rate could meaningfully control overall spend.

Today the balance is different. In 2026, non-commodity charges now represent around 60 to 64 per cent of a typical commercial electricity bill (Source: industry analysis. Ofgem notes that wholesale costs can typically account for approximately 40% of a business electricity bill with the remainder comprising network, policy and other costs. The precise balance varies by business, tariff and location. . These are the regulated, infrastructure-linked costs that fund the operation, maintenance and transformation of the UK’s energy system. They include transmission and distribution network charges, system balancing costs, capacity market levies and policy charges that support renewable energy deployment.

These costs are not driven by global fuel markets or short-term supply shocks. They are driven by something more structural: the modernisation of a grid that was built for a different era. Decentralised renewables, rising demand through electrification, and two-way power flows all require significant long-term infrastructure investment. The cost of that investment is recovered through the charges embedded in electricity bills.

Why haven’t bills fallen in line with wholesale prices?

Wholesale electricity prices have eased significantly since the crisis peaks of 2022, when prices exceeded £400 per megawatt hour. As of early 2026, wholesale electricity sits around £99 to £102 per MWh. Yet many organisations have found that their total energy bills have not fallen proportionally.

The reason is that while wholesale prices may have come down, non-commodity costs have continued to rise. Transmission Network Use of System (TNUoS) charges increased by more than 60 per cent in most regions from April 2026 (Source: NESO final TNUoS tariffs 2026/27, published January 2026), and the Capacity Market Levy has also risen sharply. These increases are structural, driven by grid investment and policy commitments, and are unlikely to reverse.

In effect, the portion of the bill that procurement has traditionally focused on – the wholesale unit rate – now represents less than half of total cost. That means the portion that procurement has historically paid less attention to is growing steadily and is largely beyond the reach of traditional tactics like supplier negotiation.

Will the recent announcement on delinking electricity prices from gas make a difference?

The UK government recently announced plans to break the link between gas and electricity prices, a move designed to reduce the influence of gas market volatility on what businesses pay for power. The centrepiece is a Voluntary Wholesale Contract for Difference, which would offer existing renewable and nuclear generators a fixed price in place of gas-linked market revenues.

The direction is  intended to reduce the influence of gas on wholesale electricity pricing. If successful, reducing that dependence could, over time, contribute to greater price stability.

However, the near-term impact on commercial energy bills is likely to be modest. The scheme is voluntary, and at current gas prices, generators have limited financial incentive to participate.  The near-term effect is unlikely to be immediate, and gas is expected to remain an important influence on wholesale electricity prices during 2026. Any longer-term effect will depend on participation, implementation and market conditions.

This is important context for procurement decisions. Organisations that delay action in the hope that delinking will reduce their bills may find themselves waiting longer than expected, while the structural costs on the other side of the bill continue to climb.

What does all this mean for procurement?

None of this indicates that wholesale prices don’t matter. They still do, and volatility remains a live risk, driven by ongoing geopolitical instability and the continued role of gas in setting electricity prices. Managing that exposure is still an essential part of any procurement strategy.

But a procurement approach that focuses primarily on the unit rate is now managing less than half the total cost of the bill. Therefore, understanding the full structure of the bill, including where non-commodity costs sit and how they are applied, needs to be the starting point for any procurement decision that aims to control total cost rather than just headline price.