The Real Cost of Energy: What Your Bill Doesn’t Show

With energy bills still putting pressure on households across the UK, it’s no surprise that many people are asking what’s really driving the cost of electricity.

Energy prices are affected by lots of different things. Global conflicts, changes in the energy market and government policy all play a part, which is why there’s so much debate about what’s causing bills to rise.

You may have heard that green levies are pushing prices up, while others say fossil fuels are still the cheaper option. The truth is, it’s not quite that simple.

Instead of focusing on the headlines, let’s look at where the costs actually come from. Breaking everything down to the cost per kilowatt-hour (kWh) (don’t worry, it’s simpler than it sounds) gives a clearer picture of how renewable energy and fossil fuels are supported, and what that means for your energy bill.

How Do Renewable and Fossil Fuel Subsidies Compare?

The way we pay for energy isn’t always obvious. Some costs appear on our energy bills, while others are covered through tax reliefs or government funding.
The UK has provided an average of around £12 billion a year in support for fossil fuels over recent years. That support includes tax reliefs for oil and gas production, as well as reduced VAT on domestic gas and electricity.

Renewable energy has also received government support to help grow the industry and encourage investment. While these schemes have often attracted more attention, many now cost less than they did in the past, and some renewable projects can even return money to the system when wholesale electricity prices are high.

Rather than comparing headline figures, it helps to look at what they mean for the average household. Breaking the numbers down into the cost per kilowatt-hour (kWh) gives a much clearer picture.

Renewable energy support: around 0.8p per kWh

Support for renewable energy used to appear on household bills as part of environmental and social policy costs. Today, these charges account for less than 5% of a typical household energy bill.

Across the UK’s electricity demand, support for renewable technologies works out at around 0.8p per kWh.

It’s also worth knowing that many newer renewable energy projects operate under Contracts for Difference (CfDs). Put simply, if electricity prices rise above an agreed level, generators pay the difference back, helping to keep costs down for consumers.
Fossil fuel support: around 2.5p per kWh

Support for fossil fuels is less visible, but it still exists. Much of it comes through tax reliefs and reduced VAT rates rather than direct payments. Domestic gas and electricity currently benefit from a reduced VAT rate of 5%, alongside tax incentives linked to North Sea oil and gas production.

When these measures are combined, support for fossil fuels is estimated to equate to around 2.5p per kWh. Because these costs are funded through general taxation rather than appearing as a separate line on energy bills, they’re easy to overlook.

Government Support Isn’t Just for Fossil Fuels

To keep things balanced, it’s worth pointing out that the Government also offers support to homeowners investing in cleaner technologies.

At the moment, you don’t pay VAT on many energy-saving improvements, including solar panels, battery storage, heat pumps and insulation. The temporary 0% VAT rate on Energy Saving Materials is currently due to remain in place until 31 March 2027, making it more affordable to improve your home’s energy efficiency.

For anyone thinking about installing solar panels, it can make a noticeable difference to the upfront cost while helping you reduce the amount of electricity you need to buy from the grid.

Curious how much you could save? Try our Solar ROI Calculator to get an instant estimate based on your home and energy usage.

Does the Grid Need Upgrading?

Another common question is whether moving towards renewable energy means paying for an entirely new electricity grid.

The reality is that the UK’s electricity network already needs significant investment. Much of the infrastructure we rely on today was built more than 60 years ago and is reaching the end of its working life.

While expanding renewable energy does require new cables, substations and other upgrades, much of this work would still be needed to keep the network reliable, regardless of how our electricity is generated.

The Climate Change Committee says that upgrading the electricity grid is an essential part of building a cleaner and more reliable energy system. A modern grid can reduce the UK’s reliance on imported fossil fuels and make us less exposed to the swings in global energy prices we’ve seen in recent years.

What Does This Mean for Homeowners Considering Solar?

Every energy source receives some form of government support. The difference is how that support is delivered and what it offers in the long run.

Solar panels require an upfront investment, but once they’re installed, the fuel is free. That means you can generate more of your own electricity, reduce your reliance on the grid and protect yourself from future energy price rises.

For many households, it’s not just about lowering bills today. It’s about having more control over your energy costs for years to come.

If you’re wondering whether solar is right for your home, our ROI Solar Calculator can give you a personalised estimate based on your roof, location and electricity usage. If you’d like to speak to someone first, explore our Domestic Solar Panels or Solar Battery Storage services or get in touch with our team for friendly, no-obligation advice.