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.
Why do gas and electricity bills change?
Click on a term in our energy bills glossary for an explanation of the costs and factors.
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.
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.
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.
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.
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 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).
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:
- How to save money on gas and electricity bills
- How to switch energy supplier and shop for a better deal
- How to switch energy supplier if you’re in debt
- How to switch energy supplier if you’re a tenant
- Compare gas and electricity tariffs: Ofgem-accredited price comparison sites
- Compare supplier performance on customer service
- Get extra help from energy services
More guides on energy bills
- Visit the Citizens Advice energy shopping guide for tips on Reading your bill and annual statement (opens external website)
- Contact the Citizens Advice consumer helpline (opens external website) if you need help, advice or further assistance with your bill.
- See our Key terms explained section for definitions you may come across when talking about you energy bill, from 'Tariff Comparison Rate (TCR)' to 'Economy 7'.
- See our facts and figures infographic for a simple overview of Bills, prices and profits.
- See our guide on Energy bill credit and claiming credit back