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 2016

This chart provides an estimate of the proportion of different costs in the dual fuel bill of an average domestic customer of the large suppliers in 2015. It is based on information reported by the large suppliers in their annual Consolidated Segmental Statements. For more information, 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 costs43.43%
Network costs23.98%
Environmental and social obligation costs7.35%
Other direct costs0.63%
Operating costs15.80%
Supplier pre-tax margin4.04%
VAT4.76%

More Information

Methodology

To estimate the breakdown of an average gas and electricity bill, we took the sum of each category of costs and pre-tax supply margins as reported by the suppliers for each fuel and then divided by the total number of customers for that fuel. We then added VAT at 5% and summed the implied bill components for gas and electricity together to derive an estimate of the overall costs making up a dual fuel bill.

Note that because it is based on the total costs and customer numbers reported by suppliers irrespective of their tariff type, the bill breakdown for gas will reflect a mixture of the costs of serving gas to dual fuel and single fuel customers – and the same also applies to electricity. As such, the dual fuel breakdown should be considered an approximation in that it will reflect a combination of the costs incurred in serving gas and electricity to both dual fuel and single fuel customers (which may differ if, for example, electricity-only customers consume more electricity than those customers that are also supplied with gas).

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data that can be found in the supplier’s externally published CSS. This is because we have made some adjustments to the way in which exceptional items are reported among suppliers 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 2016

This chart provides an estimate of the proportion of different costs in the gas bill of an average domestic customer of the large suppliers in 2015. It is based on information reported by the large suppliers in their annual Consolidated Segmental Statements.  For more information, 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 costs46.53%
Networks22.88%
Environmental and social obligation costs2.10%
Other direct costs0.62%
Operating costs16.17%
Supplier pre-tax margin6.93%
VAT4.76%

More information

Methodology

To estimate the breakdown of an average gas bill, we took the sum of each category of costs and pre-tax supply margins as reported by the suppliers for each fuel and then divided by the total number of customers for that fuel. We then added VAT at 5% and summed the implied bill components for gas and electricity together to derive an estimate of the overall costs making up a dual fuel bill.

Note that because it is based on the total costs and customer numbers reported by suppliers irrespective of their tariff type, the bill breakdown for gas will reflect a mixture of the costs of serving gas to dual fuel and single fuel customers – and the same also applies to electricity. As such, the dual fuel breakdown should be considered an approximation in that it will reflect a combination of the costs incurred in serving gas and electricity to both dual fuel and single fuel customers (which may differ if, for example, electricity-only customers consume more electricity than those customers that are also supplied with gas).

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data that can be found in the supplier’s externally published CSS. This is because we have made some adjustments to the way in which exceptional items are reported among suppliers 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 2016

This chart provides an estimate of the proportion of different costs in the electricity bill of an average domestic customer of the large suppliers. It is based on information reported by the large suppliers in their annual Consolidated Segmental Statements.  For more information, 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 costs40.09%
Network costs25.16%
Environmental and social obligation costs12.99%
Other direct costs0.65%
Operating costs15.40%
Supplier pre-tax margin0.94%
VAT4.76%

More Information

Methodology

To estimate the breakdown of an average electricity bill, we took the sum of each category of costs and pre-tax supply margins as reported by the suppliers for each fuel and then divided by the total number of customers for that fuel. We then added VAT at 5% and summed the implied bill components for gas and electricity together to derive an estimate of the overall costs making up a dual fuel bill.

Note that because it is based on the total costs and customer numbers reported by suppliers irrespective of their tariff type, the bill breakdown for gas will reflect a mixture of the costs of serving gas to dual fuel and single fuel customers – and the same also applies to electricity. As such, the dual fuel breakdown should be considered an approximation in that it will reflect a combination of the costs incurred in serving gas and electricity to both dual fuel and single fuel customers (which may differ if, for example, electricity-only customers consume more electricity than those customers that are also supplied with gas).

The data presented is based on the latest available Consolidated Segmental Statements (CSS). It may differ from the data that can be found in the supplier’s externally published CSS. This is because we have made some adjustments to the way in which exceptional items are reported among suppliers 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 factors that affect the price you pay and why they change.

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.

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