Understand your gas and electricity bills

Mae’r dudalen yma ar gael yn Gymraeg.

Energy bills explained video

Your energy use is a big factor in the price you pay for gas and electricity and making changes to your energy use can help reduce your bills. Different factors also affect how big your gas and electricity bills are. 

Energy bill breakdown

We've put together an example of a typical dual fuel, gas and electricity bill so you can see how the different costs involved in supplying you with energy break down. 

Chart

Javascript is required to render chart Breakdown of a dual fuel bill.

Source: Companies’ consolidated segmental statements.

Information correct as of: August 2017

This chart shows an estimate of the different costs that make up an average dual fuel bill for a typical domestic customer of the six large suppliers. It is based on reported data from the six large suppliers’ annual Consolidated Segmental Statements.

Click the ‘more information’ tab above for information on our methodology.

For information on supplier prices and profits, please see our page Understanding the profits of the large energy suppliers.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Breakdown of a dual fuel bill

Annual costPercentage
Wholesale costs37.88%
Network costs26.03%
Environmental and social obligation costs8.11%
Other direct costs1.17%
Operating costs17.22%
Supplier pre-tax margin4.83%
VAT4.76%

More Information

Methodology

To estimate the breakdown of an average gas and electricity bill, we:

  1. Took the sum of each category of cost (e.g. wholesale, network etc) and the pre-tax supply margin reported by the suppliers for gas. Did the same for electricity.
  2. Divided the gas sum by the total number of customers and added VAT at 5%. Did the same for electricity.
  3. Added together the resulting two figures to get a combined estimate of the overall cost of a dual fuel bill.

Please note that chart calculations are drawn from suppliers’ reported total costs and total customer numbers, irrespective of tariff type. They will therefore reflect a mixture of the costs to supply dual fuel and single fuel customers. As such, the dual fuel breakdown is an approximation – values may differ, for example, if electricity-only customers use more electricity than those customers who are also supplied with gas.

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data in the suppliers externally published CSS. This is because we have made some adjustments to the way exceptional items are reported to improve comparability.

Figures relate to the suppliers’ financial years. Five of the companies (British Gas, EDF, E.ON, npower and ScottishPower) have financial years ending in December, whereas SSE’s financial year runs from April to March. 

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Chart

Javascript is required to render chart Breakdown of a gas bill.

Source: Companies’ consolidated segmental statements.

Information correct as of: August 2017

This chart shows an estimate of the different costs that make up an average gas bill for a typical domestic customer of the six large suppliers. It is based on reported data from the six large suppliers’ annual Consolidated Segmental Statements.

Click the ‘more information’ tab above for information on our methodology.

For information on supplier prices and profits, please see our page Understanding the profits of the large energy suppliers.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Breakdown of a gas bill

Annual costPercentage
Wholesale costs39.42%
Networks24.50%
Environmental and social obligation costs1.60%
Other direct costs1.16%
Operating costs17.95%
Supplier pre-tax margin10.60%
VAT4.76%

More information

Methodology

To estimate the breakdown of an average gas bill, we:

  1. Took the sum of each category of cost (e.g. wholesale, network etc) and the pre-tax supply margin reported by the suppliers for gas.
  2. Divided the gas sum by the total number of customers and added VAT at 5%.

Please note that chart calculations are drawn from suppliers’ reported total costs and total customer numbers, irrespective of tariff type. The chart will therefore reflect a mixture of the costs to supply dual fuel and single fuel customers. As such, the bill breakdown is an approximation – values may differ, for example, if gas-only customers use more gas than those customers who are also supplied with electricity.

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data in the suppliers externally published CSS. This is because we have made some adjustments to the way exceptional items are reported to improve comparability.

Figures relate to the suppliers’ financial years. Five of the companies (British Gas, EDF, E.ON, npower and ScottishPower) have financial years ending in December, whereas SSE’s financial year runs from April to March. 

close

Chart

Javascript is required to render chart Breakdown of an electricity bill.

Source: Companies’ consolidated segmental statements.

Information correct as of: August 2017

This chart shows an estimate of the different costs that make up an average electricity bill for a typical domestic customer of the six large suppliers. It is based on reported data from the six large suppliers’ annual Consolidated Segmental Statements.

Click the ‘more information’ tab above for information on our methodology.

For information on supplier prices and profits, please see our page Understanding the profits of the large energy suppliers.

Policy Areas:

  • Electricity - retail markets

Data Table

Breakdown of an electricity bill

Annual costPercentage
Wholesale costs36.30%
Network costs27.59%
Environmental and social obligation costs14.79%
Other direct costs1.19%
Operating costs16.46%
Supplier pre-tax margin-1.09%
VAT4.76%

More Information

Methodology

To estimate the breakdown of an average electricity bill, we:

  1. Took the sum of each category of cost (e.g. wholesale, network etc) and the pre-tax supply margin reported by the suppliers for electricity.
  2. Divided the electricity sum by the total number of customers and added VAT at 5%.

Please note that chart calculations are drawn from suppliers’ reported total costs and total customer numbers, irrespective of tariff type. The chart will therefore reflect a mixture of the costs to supply dual fuel and single fuel customers. As such, the bill breakdown is an approximation – values may differ, for example, if electricity-only customers use more electricity than those customers who are also supplied with gas.

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data in the suppliers externally published CSS. This is because we have made some adjustments to the way exceptional items are reported to improve comparability.

Figures relate to the suppliers’ financial years. Five of the companies (British Gas, EDF, E.ON, npower and ScottishPower) have financial years ending in December, whereas SSE’s financial year runs from April to March. 

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Why do gas and electricity bills change?

Click on a term in our energy bills glossary for an explanation of the costs and factors.

Competition

Ofgem and the government don’t set energy prices. Instead suppliers compete against each other for customers and this competition puts pressure on them to reduce their prices, or risk losing customers.

Wholesale costs

These make up the biggest part of your bill. Changes in these costs might, in a competitive market, cause suppliers to raise or cut prices.

Wholesale costs are how much your supplier has to pay to get the gas and electricity to supply you with energy. It may buy energy via an exchange, or have a contract with an electricity generator or gas producer. Some suppliers are also part of companies that generate their own electricity.

Because imports are an important part of Britain’s energy mix, we compete with other countries for them. This means that global availability and demand for energy affects price.

When availability is high and demand is low, prices are generally lower too. In the opposite scenario – demand higher and availability lower – the wholesale prices rise.

The price of Liquefied Natural Gas – LNG – and gas from some European countries is linked to oil prices. So when oil prices change, it affects LNG and some European gas prices.

Because prices change frequently, suppliers often buy their energy in advance, which reduces volatility. Different suppliers have different approaches to managing these risks.

For example, some suppliers may buy energy for standard tariffs as much as two to three years in advance.

For customers on fixed term deals, suppliers typically buy energy nearer the time the tariff is launched. These differences mean changes in wholesale prices will not affect all suppliers and tariffs in the same way at the same time.

Network and balancing costs

These relate to the wires and pipes that carry energy through the network and across the country into your home.

Suppliers are charged for the costs of maintaining and using these networks, and these charges are then passed on from suppliers to customers through bills.

We set price controls for the companies that own these wires and pipes because they are monopolies. These limit the total amount they can earn.

Network charges may vary from year to year, for instance as a result of changes in consumption levels, and in how charges are allocated among different users of the network.

There are also the costs of balancing supply and demand. This is done second-by-second for electricity, and on a daily basis for gas. These balancing charges also vary over time depending on what it actually costs to balance the system.

Costs of government obligations

Suppliers also include costs related to government programmes to save energy, reduce emissions and encourage take-up of renewable energy.

These programmes also affect customers’ bills more indirectly, via their impact on energy use for households that have benefitted from energy efficiency schemes, and wholesale electricity prices, for example.

Supplier costs and profits

Suppliers incur costs from running their own business (such as costs relating to sales, metering and billing). When they set their prices, they will also try to cover these costs, as well as to make a profit. The pre-tax margin is a supplier’s overall earnings before interest, tax and other costs are deducted, like funding debt payments and government social scheme obligations.

Other direct costs

Other direct costs refer to costs relating to market participation. This includes Elexon/Xoserve administration costs, brokers’ costs, intermediaries’ sales commissions and any wider smart metering programme costs (e.g. costs related to the Data Communications Company, the government appointed company to manage data communications between smart meters and suppliers).

VAT

Value added tax is paid on households’ energy bills.

How to lower your gas and electricity bills

Shopping for a better energy deal and switching tariff or energy supplier can make a big difference to your bills - around £300 a year. The following pages explain how you can save money and get the best deal for you:

More guides on energy bills