Understanding Electricity Supply in the UK

Understanding how electricity supply in the UK works can be a little complicated, with lots of different components working together to get energy from source to socket. That’s why we’ve created this handy guide to help you get clued up on everything from understanding electricity generation to the difference between wholesale and retail energy markets. 

The key elements of electricity supply in the UK can be broken down into three components:  

• Generation – creating power from energy sources 
• Transportation – moving energy around the country 
• Delivering to Consumers – powering the UKs homes and businesses 

The UK uses a mixture of sources to generate electricity, from both renewable sources – such as wind, solar, biomass and hydro – and non-renewable fossil fuel sources – such as coal, oil and natural gas. In 2023, 29% of energy supply in the UK was generated from renewable sources, whilst the other 71% came from non-renewable sources, primarily natural gas and oil. This is a great increase on previous years, when fossil fuels were the only source of energy generation.  

Fossil fuel electricity generation involves extraction techniques such as mining and drilling. The fuels extracted are then burned to produce energy. 

Renewable energy generation relies on new infrastructure such as wind turbines and solar panels which produce ‘green’, non-polluting energy. The nature of renewable energy is that it is naturally occurring and does not deplete with use. The amount of energy generated will depend on levels of demand, so if the demand for renewable energy increases as more people opt for green energy plans, fossil fuel energy production will decrease, in turn benefitting the planet. 

Once generated, electricity is then transported around the country via a network of cables and wires owned by the National Grid. The National Grid are responsible for ensuring this transportation happens safely and effectively using step-up transformers to convert power to high-voltages and step-down transformers to convert power to lower voltages. 

This energy supply needs to be transmitted long distances using high voltage power lines before being distributed to homes and businesses, using lower voltage lines. This system is similar to a network of roads, with motorways and smaller roads working in connection with one another to get energy (or cars!) from A to B.  

Before being distributed to homes and businesses, electricity is converted into lower voltages, suitable for the smaller regional distribution networks. This task is carried out by Distribution Network Operators (DNOs). DNOs are responsible for operating and maintaining distribution networks including substations and power lines that bring electricity to homes and businesses. 

To find out who your network provider is, you can visit the Energy Networks Association website and enter your postcode.  

When it comes to buying and selling electricity, consumers will get their energy from an energy supplier who buys energy in the wholesale market and sells it to homes and businesses.

Electricity in the UK is regulated to ensure that customers are paying fair prices for their energy. The main regulatory authority in the UK is Ofgem (Office of Gas and Electricity Markets), who are an independent entity aiming to protect consumers and keep the energy system fair whilst adhering to environmental sustainability laws. Ofgem will also set price controls, monitor market competition and enforce rules on energy suppliers to promote energy efficiency and fair trading.  

The wholesale market– this is where energy suppliers buy electricity from generators which they will then sell to their customers. Wholesale prices are not regulated in the same way that retail prices are, instead the market sets prices based on levels of demand and competition. 

The retail market – this involves the sale of electricity between energy suppliers and their customers. This is where consumers choose an energy supplier by getting quotes and negotiating prices. Customers, whether domestic or business, will enter a contract with their chosen supplier, usually agreeing to fixed rates.  

For domestic customers, Ofgem will set a price cap, determining the maximum amount the customer can be charged for their energy, however, this does not apply to businesses.  

When a business contract ends, their new price will depend on the current wholesale prices, meaning business energy rates may be more volatile than domestic rates if not locked into a contract. 

There are a number of factors that can affect the prices of electricity in the UK. As well as the amount of electricity you use each billing period, the price your supplier pays for your electricity in the wholesale market can also be reflected in your bills.  

Price fluctuations can happen due to something as simple as the time of day – often you will be charged more for energy used during ‘peak’ times in the day, and these rates will drop during ‘off-peak’ times such as overnight and weekends. Global events such as natural disasters, international relations and damage to generation and transportation equipment can also impact the prices of electricity in the UK. To find out more about what drives electricity prices, check out our guide.  

Whilst making sense of energy supply in the UK can be tricky, we hope our guide has helped you understand where your energy comes from and the journey it makes before getting to you.  

If you’re ready to lock in low rates for your business energy, use our online quote tool to find out how much you could save or check out our range of free guides covering everything from sustainability to business development tips.