At-a-glance summary

Between Q2 2011 and Q1 2020, the gas market share of the six largest suppliers dropped from nearly 100% to 72[% (the latter includes OVO’s market share after the acquisition of SSE and is up from 69% in Q4 2019). The market share for the largest gas supplier in the GB domestic market, British Gas, fell from 43% to 27%. The market share held by medium and small suppliers was 28% in Q1 2020, down from 31% in Q4 2019.

Relevance and further information

The evolution of market shares is a useful measure of trends in market concentration. They help us understand the impact between market shares and competitive dynamics and which companies are winning or losing customers.

Methodology

We calculate market shares from the number of meter points on the gas distribution networks, as provided to us by Xoserve. As of July 2017, supply points connected to independent gas transporters are included in the gas data provided by Xoserve.

The underlying data for the chart only include the individual market share for a supplier when it reaches a threshold of 1%. Only data for individual suppliers which currently exceed the 1% threshold are shown. All other suppliers are grouped together. We periodically review, typically with a lag of one quarter, the group of suppliers that we define as large, medium and small.

Rounding errors may mean that the combined market share across all suppliers does not exactly sum to 100%.

At-a-glance summary

Between Q2 2011 and Q1 2020, the combined electricity market share of the six largest suppliers dropped from nearly 100% to 73% (the latter includes OVO’s market share after the acquisition of SSE and is up from 70% in Q4 2019). The market share held by medium and small suppliers was 27% in Q1 2020, down from 30% in Q4 2019.

Relevance and further information

The evolution of market shares is a useful measure of trends in market concentration. They help us understand the impact between market shares and competitive dynamics and which companies are winning or losing customers.

Methodology

We calculate market shares from the number of meter points on the electricity distribution networks, as provided to us by electricity distribution network operators.

The underlying data for the chart only include the individual market share for a supplier when it reaches a threshold of 1%. Only data for individual suppliers which currently exceed the 1% threshold are shown. All other suppliers are grouped together. We periodically review, typically with a lag of one quarter, the group of suppliers that we define as large, medium and small.

Due to the formatting of older data sources, figures prior to Q4 2012 do not contain decimal places. Rounding errors may mean that the combined market share across all suppliers does not exactly sum to 100%.

At-a-glance-summary

There had been a steady increase in the number of licensed suppliers becoming active in the domestic energy markets up to mid-2018. In the second half of 2018, no new domestic suppliers became active, while eight suppliers left the market. During 2019, eight suppliers entered and twelve suppliers exited the market. In the first quarter of 2020, one supplier entered (Omni) and two suppliers left the market.  

In January 2020, OVO completed the purchase of SSE, while keeping SSE as a separate white label brand. This is shown in the chart as one exit of a licensed supplier between January 2020 and March 2020. The other exit included in this period is Engie, as its domestic business was acquired by Octopus and became effective from February 2020.

Between January 2020 and March 2020 one supplier (GNergy) ceased to trade and we had to appoint a SoLR. During the same period a number of exits via trade sales also happened for which the migration of customers is still ongoing. These include: npower (acquired by E.ON) and iSupply (EDF). These exits will be reflected in subsequent updates. 

 

Relevance and further information

This chart helps understand the GB energy market dynamics by showing the number of entries and exits that underpins the evolution in the number of active licensed suppliers over time.

For a breakdown of how many active suppliers are supplying each fuel type please go to our chart Number of active suppliers by fuel type [8].

Methodology

We calculate the number of entries, exits and total number of active licensed suppliers (i.e. those with customers) from the information that both network operators and suppliers provide to us. White label suppliers are not included in this number. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand.

At-a-glance summary

Direct debit customers have traditionally been offered the cheapest tariffs, followed by standard credit customers and those using prepayment meters.  

The overall cheapest tariffs have continued to be those for direct debit customers. However, the ranking between standard credit and prepayment cheapest tariffs has fluctuated over time. The lowest standard credit tariff on the market was £859. Among the six largest suppliers, the cheapest standard credit tariff remained at £958 in August 2020, the same as for July 2020. This is still less expensive than the cheapest prepayment tariff, which in August 2020 is unchanged at  £1,098.

At the end of August 2020, the cheapest direct debit tariff in the market was £71 less expensive than the cheapest standard credit tariff and £195  less than the cheapest prepayment tariff. The cheapest direct debit tariff has historically been at least £100 less expensive than the cheapest standard credit tariff.

A prepayment price cap was introduced on 1 April 2017, limiting the amount that suppliers can charge their prepayment customers. The default tariff price cap also came into effect on 1 January 2019, limiting the amount that suppliers can charge customers on default tariffs.

 

Relevance and further information

This indicator helps us understand pricing by payment methods, as well as how much other suppliers are able to compete with the six large suppliers for each method.

Methodology

We calculate the bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of April 2020, typical domestic consumption values [19] (TDCV) for a medium consumer are 12,000kWh/year for gas and 2,900kWh/year for electricity (profile class 1). The previous typical domestic consumption values (TDCV), that came into effect as of October 2017 were 12,000kWh/year for gas and 3,100kWh/year for electricity (profile class 1). The chart includes collective switching tariffs from Q1 2016.

All tariffs shown in the chart are for a dual fuel customer. Dual fuel refers to a situation where a customer takes gas and electricity from the same supplier.

Tariffs with limited availability depending on customer features (for example, tariffs which are only available to new customers, also known as ‘acquisition’ tariffs, or tariffs restricted to certain regions) are excluded from the calculation to make sure that all tariffs considered are generally available to all customers across GB.

Tariffs available with white label suppliers are included in the calculation of the cheapest tariff. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand.

At-a-glance summary

In Q2 2020, the average standard variable tariff (‘SVT’) price for a domestic customer with one of the twelve larger suppliers for customers on direct debit payment methods ranged between £915 and £1,126. This period coincided with the fourth default tariff cap period. The average SVT prices of seven of the twelve suppliers were within £5 of the cap level, set at £1,127 in this period.

In this period, three suppliers had fixed term default tariffs. The cheapest fixed term default tariff was offered by Octopus Energy, including its white label brands, and priced on average at £1,030 during the period. The most expensive one was offered by npower, at £1,125 on average.

All of the average cheapest deals in this period were above the average market cheapest tariff of £798, ranging between £793 and £1,025. The average SVT price differentials in the period were between £97 (excluding Bulb) and £316 relative to these suppliers' cheapest tariffs. The SVT price differentials were between £149 and £360 relative to the market cheapest tariff.

In January 2020, OVO completed the purchase of SSE, while keeping SSE as a separate white label brand, with different tariff offers. From January 2020, all OVO’s prices, include SSE and other white labels.  

For an overview of the SVT and price trends over time see our chart on the Retail price comparison by company and tariff type [17].

Relevance and further information

This chart measures the savings available to customers on default tariffs if they change tariff or switch supplier.

It should be considered jointly with our charts on the Number of domestic gas customer accounts by supplier (excluding prepayment customers): Standard variable, fixed and other tariffs (GB) [26] and the Number of domestic electricity customer accounts by supplier (excluding prepayment customers): Standard variable, fixed and other tariffs (GB) [27]

Our data shows default tariffs are usually more expensive than other deals available in the market. Customers on default tariffs are potentially missing out on significant savings on their bills compared to cheaper tariffs from their existing or another supplier.

For previous updates, please see our page here [28].

Methodology

• We calculate the bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of October 2017, typical consumption values for a medium consumer are 12,000kWh/year for gas and 3,100kWh/year for electricity (profile class 1). All tariffs shown in the chart are for a dual fuel, direct debit customer. 
• We use weekly prices across the quarter prior to publication to calculate the average SVT price. We take the price data for each Monday of every week in the analysed period. The source is Energyhelpline for SVT and cheapest tariffs, while fixed term default tariffs are sourced from suppliers. SVT prices in this chart always refer to paper billing prices. 
• We use the same calculations to produce the average cheapest tariff price for each supplier and for the average market cheapest tariff price. When calculating the cheapest tariff at both individual supplier and market level, we exclude tariffs restricted to certain regions. This is so we give a representative picture of tariffs generally available to all customers across GB. 
• When calculating the cheapest tariff at individual supplier level, we include tariffs only available to existing customers (also known as ‘retention' tariffs) and exclude tariffs only available to new customers (also known as ‘acquisition’ tariffs). 
• When calculating the cheapest tariff at market level, we include tariffs only available to new customers (also known as ‘acquisition’ tariffs) and exclude tariffs only available to existing customers (also known as ‘retention' tariffs). 
• Collective tariffs or exclusive deals only available through a supplier’s website or through a specific price comparison website are included to the extent they are ‘open collective switches’ available to all customers. We also include tariffs restricted to a particular payment method, except for prepayment. 
• The cheapest tariffs can include fixed and variable tariffs, may or may not involve exit fees, rewards or discounts, may only be available online and may be offered by any suppliers active in the market. Some suppliers included in the average market cheapest tariffs may not offer the Warm Home Discount. 
• We include tariffs available with ‘white label’ providers in the calculation of the market cheapest tariff. Where relevant, we have also included them in the cheapest tariff offered by the parent supplier of the ‘white label’. ‘White label’ providers are organisations without supply licences that partner with an active licensed supplier to offer gas and electricity tariffs using their own brand.

At-a-glance summary

In April 2017, the prepayment price cap came into force, limiting the amount that suppliers can charge their prepayment customers. These customers tend to be unable to access the cheapest deals and are also more likely to be in vulnerable circumstances.

As of August 2020, the weighted average price of SVTs for a dual fuel prepayment customer remained at £1,162, unchanged from July 2020. The current prepayment meter cap for this summer period is set at £1,164. At the beginning of August we published the new cap level for the winter period, down to £1,070. This will come into effect on 1 October. Many suppliers have already announced new prices to comply with the new tariff cap level and will be covered in future updates.

The cheapest prepayment tariffs available in the market have remained below the average SVT for a prepayment customer following the introduction of the prepayment price cap. The cheapest prepayment tariff has remained constant at £982 in August 2020. Therefore, the differential between the average SVT and the cheapest prepayment tariff remains at £180, the same as July 2020.  

For more information on the latest updates, see our chart Breakdown of the prepayment price cap [31].

Relevance and further information

This chart helps us track the differential between the average prepayment SVT and the market cheapest PPM tariff price a customer will pay if they use prepayment to pay their energy bills. Both prices are compared with the prepayment price cap that currently apply to all prepayment customers, excluding those on ‘interoperable’ smart meters.

Customers who get the Government’s Warm Home Discount (WHD) and are on a standard variable or default tariff were protected by a ‘safeguard tariff’ set at the level of the prepayment price cap until the end of 2018, after which they were transferred to the default tariff price cap [32]. The default tariff price cap came into effect on 1 January 2019, limiting the amount that suppliers can charge customers on default tariffs. The default tariff cap has different levels set to reflect how customers pay, where they live and the type of energy meter they have. When transferred, WHD customers will be placed on the cheaper default cap level set for direct debit payment methods – it won’t matter how they pay.

You can find further information on energy price caps here [33].

 

 

Methodology

We calculate the bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of April 2020, typical consumption values [19] for a medium consumer are 12,000kWh/year for gas and 2,900kWh/year for electricity (profile class 1). The previous typical domestic consumption values (TDCV), that came into effect as of October 2017 were 12,000kWh/year for gas and 3,100kWh/year for electricity (profile class 1). All prices shown are for a dual fuel customer (i.e. where a customer takes gas and electricity from the same supplier). 

The market average SVTs are based on the prices of the 12 largest suppliers in the prepayment segment. We have weighted the SVT of each supplier using an estimate of their total share of all prepayment accounts (for prepayment). We update the weightings every six months in January and July to reflect customer numbers four months prior to publication. The time lag is due to data availability. For example, the average given for 28 January 2017 uses weights based on customer numbers at 31 October 2016, while the average for 28 December 2016 uses weights at 31 March 2016. 

An SVT refers to a supply contract which is for a period of an indefinite length, and which does not have a fixed-term period applying to any of the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they will be moved onto an SVT until they have chosen a new one. A customer can also make an active choice to select an SVT. 

We exclude tariffs with limited availability – such as tariffs only available to new customers (also known as ‘acquisition’ tariffs) or tariffs restricted to certain regions - when calculating the market cheapest tariff. This is so we give a representative picture of tariffs generally available to all customers across GB. 

We include tariffs available with ‘white label’ suppliers in our calculation of the cheapest tariffs. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand. 

At-a-glance summary

Focusing on the suppliers shown in the chart, with the exception of Bulb, as of April 2020, the overall proportion of domestic gas customer accounts on default tariffs (both standard variable and fixed default tariffs) not paying via the prepayment payment method was 48%, a decrease from 50% in October 2019 when comparing to the same group of suppliers. The number of domestic customer accounts on default tariffs are split between those accounts held for three years or more (24%) and those held for less than three years (24%). All other accounts were on actively chosen fixed tariffs (50%), and on other non-standard variable tariffs (2%). The proportions vary significantly across suppliers due to each supplier's business model, the characteristics of their customers and the tariffs they offer.

The above aggregated figures do not include Bulb’s customer accounts. This is because, as of April 2020, they offered only one variable tariff, which, while being an SVT, was priced similarly to fixed tariffs and was used to acquire customers.

When considering gas customer accounts on all payment methods, the proportion on default tariffs in April 2020, based on the data for the suppliers shown in the chart excluding Bulb, was 54%.

.

Relevance and further information

This chart tracks the number of domestic electricity customer accounts on different tariff types. We also publish a chart tracking the number of domestic electricity customer accounts on different tariff types [27]. Along with other switching and consumer research statistics, these charts help us understand customer engagement with the energy market.

These should be considered jointly with our chart, Average tariff prices by supplier: Standard variable and fixed default vs cheapest available tariffs (GB) [24].

Our data shows default tariffs are usually more expensive than other deals available in the market. Among the suppliers included in the chart, excluding Bulb, around 11 million domestic gas accounts (9 million excluding prepayment payment methods) were on default tariffs as of 1 October 2019. These customers are potentially missing out on significant savings on their bills compared to cheaper tariffs from their existing or another supplier. 

For previous updates, please see our page Standard variable tariff indicators - previous updates [28].

Methodology

This is an indicator of customer engagement with the tariff choice available in the market, which excludes prepayment customer accounts. This is because the availability of different tariff types for customers on prepayment is more limited than that for customers on credit payment methods. The indicator focuses on the licensed suppliers active in the market with more than 250,000 customer accounts, excluding suppliers which primarily supply to customers on prepayment meters.

The different tariff types that this chart refers to are:

Default tariffs

These tariffs are either standard variable tariffs (‘SVT’) or default fixed tariffs.

An SVT is a supply contract with an indefinite length that does not have a fixed-term applying to the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they are moved to an SVT until they choose a new one. A customer can also make an active choice to select an SVT.

Similar to a SVT, a default fixed term tariff is a tariff onto which a customer is rolled onto following the expiration of another fixed tariff. This tariff has a fixed price for a set period of time. At the end of this period, the customer will be rolled onto another fixed tariff.

Other non-standard variable tariffs

A non-standard variable tariff is a supply contract with an indefinite length that does not have a fixed-term applying to the terms and conditions and has also associated rewards schemes, bundles or added services. Any vacant properties are also included under this category.

Active Choice Fixed tariffs

A fixed tariff is a supply contract with terms and conditions which apply for a fixed period (for example, a contract offered by a supplier that has a standing and unit price that is fixed for a year). An active choice tariff is a tariff which a customer actively signs up to.

At-a-glance summary

Focusing on the suppliers shown in the chart, with the exception of Bulb, as of April 2020, the overall proportion of domestic electricity customer accounts on default tariffs (both standard variable and fixed default tariffs) not paying via the prepayment payment method was 51%, down from 53% in October 2019 when comparing to the same group of suppliers. The number of domestic customer accounts on default tariffs are split between those accounts held for three years or more (26%) and those held for less than three years (25%). All other accounts were on actively chosen fixed tariffs (48%) and on other non-standard variable tariffs (2%). These percentages do not add up to 100% due to rounding errors. The proportions vary significantly across suppliers due to each supplier's business model, the characteristics of their customers and the tariffs they offer.

The above aggregated figures do not include Bulb’s customer accounts. This is because, as of April 2020, they offered only one variable tariff, which, while being an SVT, was priced similarly to fixed tariffs and was used to acquire customers.

When considering electricity customer accounts on all payment methods, the proportion on default tariffs in April 2020, based on the data for the suppliers shown in the chart excluding Bulb, was 57%.

Relevance and further information

This chart tracks the number of domestic electricity customer accounts on different tariff types. We also publish a chart tracking the number of domestic gas customer accounts on different tariff types [26]. Along with other switching and consumer research statistics, these charts help us understand customer engagement with the energy market.

These should be considered jointly with our chart, Average tariff prices by supplier: Standard variable and fixed default vs cheapest available tariffs (GB) [24].

Our data shows default tariffs are usually more expensive than other deals available in the market. Among the suppliers included in the chart, excluding Bulb, around 14 million domestic electricity accounts (11 million excluding prepayment payment methods) were on default tariffs as of 1 October 2019. These customers are potentially missing out on significant savings on their bills compared to cheaper tariffs from their existing or another supplier.

For previous updates, please see our page Standard variable tariff indicators - previous updates [28].

Methodology

This is an indicator of customer engagement with the tariff choice available in the market, which excludes prepayment customer accounts. This is because the availability of different tariff types for customers on prepayment is more limited than that for customers on credit payment methods. The indicator focuses on the licensed suppliers active in the market with more than 250,000 customer accounts, excluding suppliers which primarily supply to customers on prepayment meters.

The different tariff types that this chart refers to are:

Default tariffs

These tariffs are either standard variable tariffs (‘SVT’) or default fixed tariffs.

An SVT is a supply contract with an indefinite length that does not have a fixed-term applying to the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they are moved to an SVT until they choose a new one. A customer can also make an active choice to select an SVT.

Similar to a SVT, a default fixed term tariff is a tariff onto which a customer is rolled onto following the expiration of another fixed tariff. This tariff has a fixed price for a set period of time. At the end of this period, the customer will be rolled onto another fixed tariff.

Other non-standard variable tariffs

A non-standard variable tariff is a supply contract with an indefinite length that does not have a fixed-term applying to the terms and conditions and has also associated rewards schemes, bundles or added services. Any vacant properties are also included under this category.

Active Choice Fixed tariffs

A fixed tariff is a supply contract with terms and conditions which apply for a fixed period (for example, a contract offered by a supplier that has a standing and unit price that is fixed for a year). An active choice tariff is a tariff which a customer actively signs up to.

Pre-tax supply margins of the largest suppliers: At-a-glance summary

Between 2009 and 2016, the average combined gas and electricity pre-tax domestic supply margin across the six large suppliers grew from around 1% to around 4%, with significant differences between the suppliers’ margins.

Between 2016 and 2019, profits earned by the six large suppliers continued to vary substantially, but generally showed a decrease in the average combined gas and electricity pre-tax domestic supply margin, falling to -1.5% in 2019. All six large suppliers experienced a reduction relative to 2018 values, leading to a lower variation across suppliers’ margins in 2019 compared to previous years. All suppliers, except for Centrica, made a loss in the domestic supply segment in 2019. EDF and Scottish Power saw the largest decrease in their margins, falling from 1.8% to -6.1% and from 4.2% to -2.1% respectively. E.ON experienced the smallest change, from -0.3% to -1.3%.

In 2020, OVO completed the purchase of SSE and E.ON acquired npower. The Consolidated Segmental Statements of 2019 are not affected by these sale transactions.

Relevance and further information

This chart helps us understand trends in profits in the domestic supply market and how they differ between suppliers.

Methodology

The supply margins shown in this chart are the ratio between a company’s Earnings Before Interest and Taxes (EBIT) - the ‘pre-tax margin’ - and its total revenues from supplying gas and electricity.

A supplier’s pre-tax margin is calculated by subtracting from a company’s total revenue its total direct costs, total indirect costs (such as operating costs), depreciation and amortisation for supplying energy.

Figures are calculated using information from companies’ annual Consolidated Segmental Statements [39]. They 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. 

The data in this chart may differ from the data that can be found in the company’s externally-published Consolidated Segmental Statements. This is because we have made some adjustments to the way in which exceptional items are reported among suppliers to improve comparability.

Domestic dual fuel bill breakdown over time: At-a-glance summary

Between 2009 and 2019, the average domestic dual fuel bill has fluctuated, reaching a peak of £1,286 in 2013. In 2019 it decreased to £1,171 from £1,184 in 2018. Both average wholesale and environmental/social costs reported by the large suppliers increased in 2019, while other costs remained fairly unchanged. Given the continued competitive pressure and the introduction of the default price cap in 2019, suppliers could not pass through these cost increases to customers and, on average, experienced a loss (the EBIT component was down to -£16 in 2019 from £33 in 2018).

Relevance and further information

This indicator helps to explain the costs making up an average dual fuel bill and show the factors influencing total bills in a given year. The costs that make up a bill are wholesale costs, network costs, environmental and social obligation costs, operating costs (including depreciation and amortisation), supplier pre-tax margin and VAT.

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 [41]. It may differ from the data that can be found in the supplier’s externally published Consolidated Segmental Statements. 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.

At-a-glance summary

• We update the level of the prepayment price cap on 1 April and 1 October each year. The update on 1 October 2019 will decrease the set level by £25 from its previous level at 1 April 2019.
• In July 2019, the CMA revised the methodology [45] to better reflect the costs incurred in delivering energy services to prepayment customers. From 1 October 2019, the prepayment meter price cap methodology aligns more closely with our methodology for the default tariff price cap.
• The tariff level will reflect changes in the costs of supplying energy. We determine how much each independent component of the cap should change by looking at external cost data. Details of the latest update can be found here - Prepayment meter tariff cap: 1st April 2020 to 30th September 2020 [46].

Relevance and further information

This chart summarises the different costs that make up the prepayment meter price cap applying to customers with prepayment meters (excluding those with fully interoperable smart meters). 

The Competition and Markets Authority introduced the price protection of a price cap to prepayment meter customers, who can’t easily access the cheapest tariffs, in April 2017. These customers are often in vulnerable circumstances. They designed the tariff based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity to certain groups of customers. 

As the energy regulator, Ofgem administers and calculates the level for the cap.

We update the level of the tariff every six months, either reflecting changes in underlying costs, or increases in inflation.

Methodology

• The level of the cap is based on calculations of wholesale costs, network costs, policy costs, operating costs and costs specifically associated with prepayment meters. It also includes a degree of ‘headroom’, which is designed to allow suppliers to offer competitive deals underneath the level we set for the prepayment price cap.
• We calculate the bill values associated with the different tariff types using a ‘typical domestic consumer’ with ‘medium’ energy use. Since April 2020, typical consumption values for a medium consumer are 12,000kWh/year for gas and 2,900kWh/year for electricity (profile class 1). Find out more at Typical domestic consumption values [47].
• All prices shown are for a dual fuel customer (i.e. where a customer takes gas and electricity from the same supplier). 
• In July 2019, the CMA revised the methodology [45] used to calculate the cap to better reflect the costs incurred in delivering energy services to prepayment customers. From 1 October 2019, the prepayment meter price cap methodology aligns more closely with Ofgem’s methodology for the default tariff price cap.
• Further details of the methodology for calculating the level of the prepayment price cap can be found in the CMA Order [48] and Explanatory Note [49] and the update published in July 2019.
• For a detailed breakdown of the cap by meter type and region, please see our page for the latest level for 1st April 2020 to 30th September 2020 [46].

At-a-glance summary

• The level of the tariff cap is based on the underlying costs required to supply energy. It applies from 1 January 2019.
• We publish the level of the price cap in February and August to apply on 1 April and 1 October respectively each year.
• The tariff level will reflect changes in the costs to supply energy. We determine how much each independent component of the cap should change by looking at external cost data. Details of the latest update can be found here - Default tariff cap: 1st April 2020 to 30th September 2020 [52].

Relevance and further information

This chart summarises the different costs that make up the default tariff price cap.

We update the level of the cap every six months, either reflecting changes in underlying costs, or increases in inflation. Our calculations cover:

• wholesale energy costs: how much a supplier has to pay to get the gas and electricity to supply households with energy (we base this on forward prices for energy to be delivered over a 12-month period)
• network costs: the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country to households
• policy costs: the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy
• operating costs: the costs incurred by suppliers to deliver billing and metering services, including smart metering
• payment method uplift allowance: the additional costs incurred by suppliers to bill customers with different payment methods
• headroom allowance: this allows suppliers to manage uncertainty in their costs, and also offer competitive deals beneath the set level of the cap.
• Earnings Before Interest and Taxes (EBIT): a fair rate of return allowed for suppliers, to ensure they can finance their businesses.
• VAT: 5% tax added to the level of the tariff.

Methodology

• The level of the cap is based on calculations of the costs required for an efficient supplier to provide energy. It also includes some additional allowances to manage uncertainty, and ensure suppliers can finance their activities, amongst other things.
• We calculate the bill values associated with the different tariff types using a ‘typical domestic consumer’ with ‘medium’ energy use. Since April 2020, typical consumption values for a medium consumer are 12,000kWh/year for gas and 2,900kWh/year for electricity (profile class 1). Find out more at Typical domestic consumption values [47].
• All prices shown are for a dual fuel customer paying by direct debit (i.e. where a customer takes gas and electricity from the same supplier). 
• Further details of the methodology for calculating the level of the Default Tariff can be found in our statutory consultation on the default tariff cap [53] and decision documents [53].
• For a detailed breakdown of the cap by meter type and region, please see our page for the latest level for 1st April 2020 to 30th September 2020 [52].

Methodology

• We calculate the Supplier Cost Index by estimating trends in network charges, wholesale prices and the charges to suppliers associated with government programmes (note that in some cases, these government charges only apply to large and medium-sized suppliers).
• These estimates are then combined with information on the relative scale of each of these categories of cost to calculate the trend in the overall Supplier Cost Index. The weights given to each category of costs are based on financial statements from the six large suppliers, and are as follows:

- wholesale electricity: 26.7%

- wholesale gas: 35.9%

- networks electricity: 15.4%

- networks gas: 14.4%

- government obligations electricity: 6.7%

- government obligations gas: 1.0%.

 

• The index reflects estimated expected annual costs, covering the 12 months from the time of each update, based on the best information available at the time. So, for example, the value of the index for May 2018 will reflect estimated costs for the period 1 May 2018 to 30 April 2019, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).
• The estimates in the index are forward-looking, they therefore rely on forecasts and assumptions, and so will be subject to uncertainty. Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers [57].
• The index does not include estimates of suppliers' ‘back-office’ operating costs (such as the costs of billing or metering – including the costs of the smart meter rollout) or their profit margins, which suppliers will seek to cover when setting their prices.
• The index is based on trends in the average prices of wholesale gas and electricity forward contracts in the month prior to the update. Suppliers will take different approaches to purchasing their wholesale energy, and many will buy their energy over an extended period. The index does not seek to estimate any impact this may have on a supplier’s costs.
• Other elements of costs are also likely to vary across individual suppliers. For example, suppliers may have some flexibility in how they meet their obligations under government programmes. This could mean, for example, that suppliers see different year-on-year changes in costs than indicated by the index where they have chosen to meet their obligations under the ECO scheme at the start of the delivery period (the forecasts used in the index are based on a flat delivery profile). Network charges will also vary between suppliers depending on things like the regional profile of their customer base. 
• The index is calculated for a customer with typical consumption. We have held consumption fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In practice, energy use will vary from one year to the next, depending on temperatures. Energy use is also subject to long-run trends, for example as a result of increasing energy efficiency. Trends in consumption will also have a significant impact on the size of customers’ bills.
• Capacity market payments were included in the index from winter 2017, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
• Since the August 2017 update, we have included the additional costs associated with the expected exemption of Energy Intensive Industries from the costs of the Renewable Obligation scheme, following the Government’s announcement in December 2017. The Government’s decision on implementing the same exemption for the Feed-in Tariff scheme has yet to be published, and so the possible impact of a similar change to the way this programme is funded is not currently included.

Further details of how we calculate the index are provided in our methodology document. [58]

 

How to interpret the year-on-year change in the Supplier Cost Index

The breakdown is calculated by combining the percentage change in each category of expected costs, with an estimate of the importance of that cost to suppliers' total costs. Adding the bars together gives the overall change in the index.

Note, therefore, that the percentages shown are not the same as the percentage change in the individual categories of costs. For example, if the chart shows a one percentage point contribution for wholesale gas this does not mean that wholesale gas costs have risen by 1%, rather that there has been an increase in wholesale gas costs which has caused the overall cost index to rise by 1%. As wholesale gas costs make up only one part of suppliers' overall costs, the percentage increase in these costs would have been significantly higher to result in a 1% increase in the overall cost index.

It is important to bear in mind that the contributions shown relate only to the direct charges to suppliers associated with the different types of costs, and do not take into account the relationships between the categories.

For instance, trends in network charges to electricity generators are not included in the ‘network charges’ component of the breakdown, as they are not paid directly by suppliers – and will instead affect wholesale electricity prices. To give another example, a reduction in wholesale prices (and so the wholesale cost component of the index) will be associated with an increase in supplier payments to fund Contracts for Difference, which support low carbon electricity generation.

For this reason, the contribution of different types of costs to the index cannot be interpreted as showing the totality of the impact of government policies or network charges on consumers’ bills.

Methodology

• We calculate the Supplier Cost Index by estimating trends in network charges, wholesale prices and the charges to suppliers associated with government programmes (note that in some cases, these government charges only apply to large and medium-sized suppliers).
• These estimates are then combined with information on the relative scale of each of these categories of cost to calculate the trend in the overall Supplier Cost Index. The weights given to each category of costs are based on financial statements from the six large suppliers, and are as follows:

- wholesale electricity: 26.7%

- wholesale gas: 35.9%

- networks electricity: 15.4%

- networks gas: 14.4%

- government obligations electricity: 6.7%

- government obligations gas: 1.0%.

 

• The index reflects estimated expected annual costs, covering the 12 months from the time of each update, based on the best information available at the time. So, for example, the value of the index for May 2018 will reflect estimated costs for the period 1 May 2018 to 30 April 2019, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).
• The estimates in the index are forward-looking, they therefore rely on forecasts and assumptions, and so will be subject to uncertainty. Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers [57].
• The index does not include estimates of suppliers' ‘back-office’ operating costs (such as the costs of billing or metering – including the costs of the smart meter rollout) or their profit margins, which suppliers will seek to cover when setting their prices.
• The index is based on trends in the average prices of wholesale gas and electricity forward contracts in the month prior to the update. Suppliers will take different approaches to purchasing their wholesale energy, and many will buy their energy over an extended period. The index does not seek to estimate any impact this may have on a supplier’s costs.
• Other elements of costs are also likely to vary across individual suppliers. For example, suppliers may have some flexibility in how they meet their obligations under government programmes. This could mean, for example, that suppliers see different year-on-year changes in costs than indicated by the index where they have chosen to meet their obligations under the ECO scheme at the start of the delivery period (the forecasts used in the index are based on a flat delivery profile). Network charges will also vary between suppliers depending on things like the regional profile of their customer base. 
• The index is calculated for a customer with typical consumption. We have held consumption fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In practice, energy use will vary from one year to the next, depending on temperatures. Energy use is also subject to long-run trends, for example as a result of increasing energy efficiency. Trends in consumption will also have a significant impact on the size of customers’ bills.
• Capacity market payments were included in the index from winter 2017, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
• Since the August 2017 update, we have included the additional costs associated with the expected exemption of Energy Intensive Industries from the costs of the Renewable Obligation scheme, following the Government’s announcement in December 2017. The Government’s decision on implementing the same exemption for the Feed-in Tariff scheme has yet to be published, and so the possible impact of a similar change to the way this programme is funded is not currently included.

Further details of how we calculate the index are provided in our methodology document. [58]

Further information

This chart is part of our quarterly update to the Supplier Cost Index. For further details, see Understanding the profits of the large energy suppliers. [60]