How do wholesale energy prices work?

Wholesale prices are the starting point for every business energy quote. They are what a supplier pays to buy the electricity or gas it then sells on to you, and they move separately from everything else on your bill: network charges, policy costs, metering and the supplier’s own margin. Understanding how they are set helps explain why quotes change from week to week even when nothing about your business has.

Electricity and gas are traded in different ways, on different markets, so this guide covers each in turn, then looks at how the two connect and where you can track prices yourself.

What is the wholesale price of energy?

The wholesale price is what generators, shippers and suppliers pay each other to buy and sell electricity or gas before it reaches your meter. It is one input into your final rate, alongside the cost of moving that energy down the wires or pipes to your premises, government and industry policy costs, metering charges, VAT, and the supplier’s own costs and margin. Our guide to non-commodity costs covers everything that sits on top of the wholesale price.

Suppliers do not usually buy energy on the day they sell it to you. Most buy in stages over weeks or months ahead of when a contract starts, a process called hedging, so the rate on your quote reflects an average of wholesale prices from before you signed, not the market on the day you get the quote.

How is the wholesale electricity price set?

GB electricity trades in half-hourly blocks, mostly through day-ahead and within-day auctions, topped up by a real-time balancing market. NESO, the National Energy System Operator, explains that “the wholesale electricity market is where electricity producers (also known as generators) sell electricity to companies that supply it to homes and businesses”, and that in GB there is currently a single wholesale price for the whole country at any given time.

The process runs in stages as delivery gets closer:

• Years and months ahead. Generators and suppliers agree forward contracts to lock in prices well in advance, which is what our forward market data tracks.
• Day-ahead. Most trading happens the day before delivery, in auctions where generators offer electricity and suppliers bid for it. The GB day-ahead price you see on our wholesale electricity prices page comes from Elexon’s Market Index Data, sourced from the day-ahead auctions run by the exchanges that trade GB power.
• Within-day. Prices can still be traded and adjusted as the delivery period approaches, as generation and demand forecasts firm up.
• Gate closure and the balancing mechanism. Trading for a given half-hour settlement period closes one hour before it starts. From that point, NESO takes over, instructing generators and, increasingly, demand-side participants to increase or decrease output to keep supply and demand matched in real time. NESO calls this its primary tool for balancing the network “second by second.”

The costs NESO incurs balancing the system in real time are recovered through a separate charge called BSUoS, which is covered in our non-commodity costs guide, not through the wholesale price itself.

Why does gas often set the price of electricity?

Because GB meets demand by calling on generation sources from cheapest to most expensive, and gas is usually the most expensive source still needed. This is known as the merit order. Ofgem explains the mechanism as “marginal pricing”: the most expensive generation source needed at any moment sets the price paid for every unit of electricity delivered in that period, not just the expensive one.

Wind and solar cost little to run once built, so they are typically called on first. Gas-fired power stations are more expensive to run and are usually the “marginal” source, the last one needed to fully meet demand. Ofgem notes that “gas generation is often the last and most expensive source, so may set the price we pay for electricity.”

That link is expected to weaken as more renewable generation is built. Ofgem cites projections that gas could set the price only around 30 percent of the time by 2030, down from the great majority of settlement periods today, as more low-cost generation reduces how often gas plants are the marginal source.

How is the wholesale gas price set?

Gas trades continuously between shippers, and National Gas runs a balancing market called the On-the-day Commodity Market (OCM) that produces a daily reference price. National Gas, which operates Great Britain’s gas transmission network, describes the OCM as “the balancing market used by National Gas to fulfil our role as residual balancer”, open for trading each gas day until 2.35am, with bids and offers posted anonymously through the ICE Endex exchange.

Trades on the OCM produce the System Average Price (SAP), a volume-weighted average of the day’s trades. National Gas explains that SAP “is then used as the basis to determine imbalance charges” for shippers whose actual gas flows do not match what they booked, so it works as a real-time benchmark of gas market conditions as well as a balancing tool.

Our wholesale gas prices page tracks the daily SAP in both pence per kWh and pence per therm, alongside a longer monthly series from Ofgem.

How do forward contracts and spot prices differ?

A forward contract fixes a price now for gas or electricity delivered at a set point in the future; the spot price is what is paid for delivery today or tomorrow. Ofgem’s forward market indicators track weekly average prices for forward delivery contracts, which is a different, generally less volatile picture than the day-ahead spot market, because a forward price is an average view of where the market expects prices to sit over the delivery period, agreed by two parties in advance.

Business suppliers use a similar approach when pricing contracts: buying a portion of the energy needed for a fixed-price contract in advance, in stages, so that a single volatile trading day does not set your whole contract price. Our guide to wholesale energy prices and forecasting looks at the published indicators you can watch, and what they do and do not tell you about where prices are heading.

What makes wholesale prices move?

Several things drive wholesale prices up or down, on both the gas and electricity markets:

Driver	What it affects
Gas supply and storage levels	Wholesale gas price, and electricity via the merit order
Weather (cold snaps, low wind, low solar)	Both, through demand and through how much gas generation is needed
Interconnector flows with Europe	Electricity, since GB imports and exports power
Planned and unplanned power station or pipeline outages	Both
Carbon prices under the UK Emissions Trading Scheme	Cost of running gas and coal generation, feeding into electricity
Seasonal demand (winter heating, summer cooling)	Both

None of these move in isolation, which is why wholesale prices can swing sharply within a single week even without a single dramatic news event. Our guide to business energy prices since 2020 shows how far prices can move when several of these line up at once, as they did in 2021 and 2022.

Demand itself is not flat through the day or the year. Electricity demand usually peaks on winter weekday evenings, when homes and businesses are both drawing power and daylight is short, which is also when the most expensive generation tends to be needed. Gas demand follows a similar winter pattern, driven by heating. That is one reason many business tariffs charge more for electricity used at peak times, and it is also the reasoning behind the capacity market, which pays some generators and demand-side providers to be available at the highest-risk winter periods. Our non-commodity costs guide explains how that scheme is funded.

How often do wholesale prices actually change?

Constantly. The day-ahead electricity price is set fresh every day for each half-hour block of the next day, so it can differ from one day to the next and from one hour to the next within the same day. The gas SAP is published once for each gas day. Both can move for the reasons above, and both are more volatile than the price you are quoted for a fixed business contract, because your supplier smooths its own buying over time rather than passing on every daily swing.

That gap between a volatile day-ahead market and a smoother quoted rate is deliberate. It is also why a single news headline about a spike in the wholesale price does not usually mean your renewal quote will move by the same amount on the same day; it depends how much of your contract period the supplier has already bought, and at what price.

How does this reach your bill?

Your contract rate is built from the wholesale price your supplier paid when it bought your energy, plus everything it costs to deliver that energy and run the contract. Wholesale cost is usually the largest single part of a fully delivered unit rate, but it is not the only part. On top of it sit:

• Network charges for using the local and national wires or pipes (DUoS, TNUoS and their gas equivalents)
• Balancing and system costs (BSUoS)
• Environmental and social policy costs (the Climate Change Levy, Contracts for Difference, the Renewables Obligation and others)
• Metering and administration
• The supplier’s own costs and margin, and any broker fee where you switched through one

Our non-commodity costs guide sets out each of these in turn, with sources for each one, and our guide to understanding your unit rate and standing charge explains how they show up on your bill.

Worked example: from wholesale price to unit rate

This is an illustration only, using example figures, not a real quote. Say a supplier is pricing a fixed contract and its average buying cost for the electricity is 12.0p/kWh. It then needs to add network and policy costs it expects to pass through, say 6.5p/kWh combined, plus its own operating costs and margin, say 1.5p/kWh. That gives a fully delivered unit rate of roughly 20.0p/kWh before VAT, split across several separate charges that each move for their own reasons. A real quote will show your actual wholesale, network and policy components, or your supplier can break these down on request.

Where can you check wholesale prices yourself?

Our market data hub pulls together everything we track automatically:

• Wholesale electricity prices: the GB day-ahead price from Elexon, updated daily, with history back to 2010.
• Wholesale gas prices: the daily System Average Price from National Gas, in pence per kWh and per therm.
• Business Energy Price Index: how far business prices and wholesale costs have moved since before the energy crisis, on one comparable scale.

These pages update automatically, so they are a better way to check today’s numbers than any figure printed in a guide like this one.

What this means for your contract

Wholesale prices explain why energy quotes change over time even when your usage does not, but they are only one part of what you pay. If you want to understand whether now is a sensible time to fix, see our guide on business energy price forecasting, which looks at the indicators available without predicting where prices will go. If you are weighing up a fixed rate against a flexible one, our guide to fixed versus flexible business energy contracts covers how each handles wholesale market movements differently.

When you are ready, you can compare business energy quotes with us.

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