Supplier Cost Index: Methodology

Publication date
9th March 2017
Information types
Policy areas

On 19 January 2017 we launched our new Supplier Cost Index. The index draws on publicly-available information to estimate ongoing trends in the main elements of costs that a supplier incurs in supplying a typical domestic customer. It shows whether industry costs are rising or falling over time and what is driving this (i.e. the relative contribution of wholesale prices, network charges and the charges to suppliers associated with government programmes designed to, for example, support renewable electricity generation and improve energy efficiency). In this way, it helps to improve transparency as to the factors behind ongoing trends in energy bills.

This document summarises the methodology that is used to calculate the index. As well as describing at a high level how the index is prepared, what costs are included, and how consumption is treated, it provides a detailed description of the approach taken to estimating trends in wholesale costs, network charges, and the charges to suppliers associated with government programmes.

The methodology used to estimate suppliers’ costs will be kept under ongoing review, as will the charts and tables we publish on the website. We welcome comments or suggestions on the cost index at any time, including how it is presented, and how it might be changed to better meet its objectives. These should be sent to marketmonitoring@ofgem.gov.uk.