A unit rate is several separate costs presented as one price

One number, several unrelated origins

A bill states a price per unit of electricity as though it were the price of a commodity, which is the smallest part of what it represents. The energy itself is bought on a wholesale market. Everything else on top pays for wires, meters, policy programmes, the supplier’s own costs and, in most countries, a consumption tax layered over the total.

The proportions vary enormously between countries and shift over time, so quoting any split here would be wrong somewhere and out of date everywhere. What holds generally is the structure, and the structure explains several things about household energy that are otherwise baffling.

It explains why a fall in wholesale prices moves a bill less than expected. It explains why electricity carries costs that gas does not. And it explains why the value of a unit you generate is not the value of a unit you buy.

Network costs pay for capacity but are collected by volume

A large part of the price funds the wires, substations and transformers that deliver the energy, and the cost of that infrastructure is driven by peak demand rather than by total consumption. A network has to be built for the worst hour of the year, and it costs the same whether it then carries a lot of energy or a little.

Historically the simplest way to recover that was to add a charge to every unit sold, which is administratively easy and economically clumsy. It means a household that reduces its consumption without touching its peak avoids paying for infrastructure it still requires, and one that consumes steadily overnight pays for capacity it never strains.

Regulators in several places are moving parts of this towards charges based on capacity or time, which is a fairer reflection of the underlying cost and is generally unpopular with whoever loses out. It is worth watching, because it changes the value of load shifting rather more than the value of generating.

Policy costs ride on electricity and change the comparison with fuel

Many countries recover the cost of environmental and social programmes through a charge on electricity, sometimes on gas as well but often at a lower rate or not at all. The effect is to widen the price gap between the two, which matters to any household deciding whether to heat with electricity or with a fuel.

That gap is a policy choice rather than a physical fact, and it is actively debated. Placing decarbonisation levies mainly on the cleaner energy carrier makes the switch away from fuel harder to justify, and several jurisdictions are examining whether to move them. If they do, the arithmetic behind a great many household decisions changes without anything physical changing at all.

This is why comparisons between fuels should always be read as comparisons under current pricing. They are not statements about the equipment.

Supply costs and tax sit on top of everything else

The supplier’s own costs — billing, customer service, the debts of customers who do not pay, and the cost of buying energy ahead of selling it — are recovered through the rate and through the standing charge in a proportion the supplier chooses. Two companies buying identical energy can therefore present quite different-looking tariffs.

Consumption tax is then usually applied to the whole bill including the other components, which means it scales with everything beneath it. A change in wholesale price moves the tax as well, which is one reason bills move more than the underlying commodity does in both directions.

None of this is hidden. Most jurisdictions require a breakdown to be published somewhere, though rarely on the bill itself.

Why a self-generated unit is worth the whole stack

When a household consumes its own generation, it avoids every layer at once: the wholesale energy, the network charge, the policy costs and the tax on all of them. That is the reason self-consumption is valuable, and it is a stronger reason than the one usually given.

A unit exported is a different proposition entirely, because the household is now selling a commodity rather than avoiding a delivered product, and the layers it avoided on the way in are not paid to it on the way out. The mechanics of that are their own subject and it is covered elsewhere here.

What follows for a solar household is a single practical point. The gap between the two is not a market failure and it is not going to close, so any assessment of a system should be built on the structure rather than on the hope that export will one day be worth what import costs.

Reading a rate before comparing anything

When two offers are set against each other, the useful question is which components each one has chosen to put where. A tariff with a low unit rate and a high fixed charge suits heavy consumption; the reverse suits light consumption; and neither is cheaper in the abstract.

For a household with generation the picture skews further, because reducing imported units does nothing to the fixed part. A tariff comparison that ignores this can rank the options in the wrong order, and the only way to get it right is to compare against your own consumption rather than against an average one.