Last updated: 04/01/2021 | Estimated Reading Time: 6 minutes
The average British household uses 2,900 kilowatt-hours (kWh) of electricity and 12,000 kWh of gas each year. This consumption will make up the largest part of your energy bills and your household carbon emissions. Budget- and environmentally-conscious Britons are keen to understand how much energy they’re using and how they can reduce this, through new behaviours and energy efficiency modifications to their homes.
Our calculators can help you determine how much energy you're using at home, particularly through appliances, and how much it’s costing you. These numbers will give you a baseline from which to begin finding savings.
In This Guide:
- How are my energy bills calculated?
- How to read your energy bill
- What affects the price of energy?
- How to get cheaper energy
How are my energy bills calculated?
Your energy bills include a charge for your usage during the billing period plus the standing charge, any discounts you have from your supplier and tax.
- Energy consumption: You’re charged a set rate for each kilowatt-hour of electricity or gas you use. This unit rate will depend on the region in which you live, which supplier you use and which tariff you’re on. These unit rates will stay the same for the duration of any fixed-rate energy tariff but fluctuate on variable rate tariffs. The national averages are [insert] p/kWh for electricity and [insert] p/kWh for gas. The charge for consumption is calculated by multiplying your usage in kWh by the unit rate.
- Standing charge: This is the amount your supplier charges you to maintain your connection and service your account. According to the Energy Savings Trust, standing charges for electricity are around 20p per day but you may be charged anything between 5p and 60p per day. Standing charges for gas are slightly higher at 24p per day and range between 10p and 80p per day.
- Discounts: Your supplier may give you discounts on your bill if you pay by direct debit or have a dual-fuel tariff, which means you get your gas and electricity from the same supplier.
- Tax: Electricity and gas are subject to VAT at 5%.
How to read your energy bill
Energy bills can be confusing but thanks to regulations from Ofgem they all follow a similar format, no matter which supplier you use. All energy bills state, among other things, how much energy you’ve used since your last bill and how much you’ll pay for it. A few directions will help you locate these key figures.
Here are the numbers to look out for on your energy bill:
- Energy consumption: The amount of electricity and/or gas you’ve used since your last bill. Your usage will either be actual, based on a meter reading, or estimated based on your previous usage.
- Time period: At the top of the bill you’ll see the dates it covers. Your usage is the amount of energy you used in this period, typically a month.
- Amount owed: This is the headline number on the bill. You’ll either be in debit, meaning you need to pay the supplier or in credit, meaning you’ve built up a balance. Energy bills paid by direct debit are usually standardised across the year so you don’t face higher bills in the winter. Therefore it’s common that customers build up credit over the summer which is then used during the winter when boilers are running and usage is higher.
- Personal projection: The amount you’re forecast to spend on energy over the next year, should you stick with your current tariff and based on your previous typical energy use.
- Information about your tariff: Including its name, if it’s variable or fixed, your payment method (direct debit or cash/cheque), end date, any exit fees and comparison to other tariffs from the supplier and across the market.
- Meter readings: Including the dates they were taken
- Your account number: The number your supplier uses to identify your account. You’ll need to quote this number in any correspondence with your supplier, for instance, to resolve issues with your bill.
What affects the price of energy?
If you have a fixed-rate energy tariff, the per-unit price you pay remains constant until the tariff ends. With variable-rate tariffs, that figure fluctuates and with it your energy bills. So what impacts the price we all pay for energy? Myriad factors: economic, geopolitical, regulatory, meteorological… Even Brexit has a role to play.
- Supply: This means the amount of electricity that is generated in the UK, by renewable technologies or fossil fuel plants, or in neighbouring countries and sent here through undersea interconnectors. It also means the amount of natural gas available in the UK, either drilled from the North Sea or imported, primarily from Norway, the Netherlands and Qatar. When supplies are tight, prices rise.
- Demand: The amount of energy Britons are consuming. Demand is usually higher in the winter, driving up prices, particularly if supplies are tighter. Conversely, when the coronavirus lockdowns shuttered manufacturing and office blocks, the UK’s and the world’s energy consumption fell, leading to lower prices.
- Weather: We consume more energy during cold spells and winter storms, driving up energy prices. The weather also impacts the productivity of renewable sources of power. Winter storms can also bolster generation from wind power, while sunny days can boost solar power, leading to cheaper prices. On cloudy, still days, prices can rise and expensive, polluting fossil-fuel plants come online. As the UK develops more battery storage infrastructure, we’ll be able to make even more use of cheap, intermittent renewables.
- Energy mix: Renewable technologies produce electricity more cheaply per megawatt-hour than other forms of generation and their prices are expected to continue falling. As they make up greater portions of our energy mix, electricity prices are expected to fall.
- Regulation: Suppliers don’t just procure electricity and gas to match their customers’ use. They’re also required to pay into schemes that, for example, support renewable generation and help customers improve the energy efficiency and warmth of their homes. These costs are eventually passed onto consumers. For instance, suppliers are carrying out the installation of smart meters, which will give us better insight into our home energy use and eliminate the need for manual meter readings and estimated bills. The rollout is expected to cost £13.5 billion, which will be felt through our bills over the next few years. Meanwhile, some regulation, like the energy price cap, limits the amount suppliers can charge us.
- International politics: The UK imports 60% of our natural gas and a small percentage of our electricity, expected to increase to 20% by 2025. That means energy prices here are impacted by conditions in other countries and our relationship with those nations. For example, energy companies have warned that a no-deal Brexit could mean the UK faces third-party charges to use the cables through which electricity is traded with Europe.
How to get cheaper energy
We’d all like to pay less for our energy. The best way to reduce your energy bills is to switch to a new supplier, particularly if you haven’t switched lately. Millions of us are overpaying by remaining loyal to the same energy company, which has likely rolled us over to an expensive standard variable tariff. A fixed tariff from a new supplier can be hundreds of pounds cheaper a year.
To see if you can find a better rate, plug your postcode into our energy comparison engine and we’ll return a personalised list of energy tariffs available to you.