How the UK Energy Market Works

The UK operates a single, national electricity market and a competitive gas market. In simple terms, electricity is produced by many generators and sold into a wholesale market, and then bought by energy suppliers who sell it on to businesses like yours. Here’s a breakdown of the key parts of the system:

Generation and Wholesale: Electricity is generated from various sources – gas-fired power stations, wind farms, nuclear plants, solar farms, etc. All this power goes into the national grid. Generators sell their electricity in a wholesale market that covers all of Great Britain (England, Scotland, Wales). Trading happens on power exchanges and through direct contracts. The price can change every half hour based on supply and demand. The National Grid Electricity System Operator (ESO) keeps the system in balance in real time, making sure supply meets demand every second. If more power is needed, ESO asks generators to ramp up; if there’s too much, it asks some to scale back. This way, no matter where electricity is generated or used in GB, it all feeds into one big marketplace and grid.

Suppliers and the Retail Market: Energy suppliers are the companies you get your business energy bills from. There are dozens of them competing to sell electricity and gas contracts to businesses. They buy energy from the wholesale market (or directly from generators) and then package it into contracts – like fixed-rate deals for 1, 2 or 3 years, or variable tariffs. The retail market is fully deregulated for businesses, meaning no government price cap and lots of competition. Prices can vary significantly and have been volatile in recent years. One year you might get quotes at 15p per kWh, the next year it could be 25p – it depends on what’s happening in the wholesale market. Unlike households, businesses don’t have a regulated price cap, so if market prices spike, business rates can rise sharply (as many saw in 2022).

Why Gas Prices Matter: You might wonder why electricity prices swing so much even as more renewables come on. The reason is that gas-fired power plants often set the price for everyone. During times of high demand, gas plants are the “last in” generators and their costs determine the market price. If natural gas is expensive, electricity gets expensive, because those gas plants need a high price to run. This means even if your business doesn’t use gas, global gas events (like geopolitical tensions or supply issues) can indirectly push your power costs up. It’s a quirk of the market that’s slowly changing as we add more cheap renewables, but for now, gas is still a major price driver.

Renewables and Trends: The good news is the UK’s grid is getting greener. As of 2025, roughly 58% of Britain’s electricity comes from zero-carbon sources (renewables like wind and solar, plus nuclear). In fact, 2024 was the first year where more than half of the electricity was generated by renewables. Over time, this should help stabilize costs and cut carbon emissions. However, renewables are weather-dependent, which introduces new patterns – for example, on a very windy night electricity can be dirt cheap (even free), but on a cold still evening, prices can jump because gas-fired stations fill the gap. For businesses, this means there may be opportunities to save by timing some usage to when power is plentiful or cheap. Big picture: the grid is becoming cleaner and smarter, but price swings haven’t disappeared yet.

Regional Networks (but One National Price): Wherever your business is in the UK, you pay broadly the same wholesale price for electricity. The government decided to maintain a single national pricing system, rather than splitting by region. That said, there are minor differences in certain network costs on your bill depending on location – but those are charges for using the local grids, not differences in the energy itself. (If you’re curious about those extra charges, see our guide on Non-Commodity Charges.) The key point is that the energy market is national, and by shopping around suppliers you can access deals regardless of where you’re based in the country.

In summary, the UK energy market has many moving parts – generation, trading, supply, and more – but understanding the basics helps explain why prices are what they are. If it still seems complex, don’t worry. Our job as brokers is to monitor this market for you and help you navigate it. Feel free to explore more topics like why prices fluctuate, or reach out to us anytime. We’ll be happy to explain the latest market trends and, more importantly, find you the best contract in this market.