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There has been a lot of media comment on the price of energy in recent months. Following political pressure, the ‘Big Six’ energy firms finally agreed to drop their prices in line with the falling costs. Consumer groups though, complain that the price drops have been too slow and too shallow compared to wholesale costs. Wholesale costs, however, make up less than 50% of the energy bill that lands on your desk each month. To try and make your energy more transparent, we have broken down and explained the different items that make up your energy bill.

Wholesale energy costs

The wholesale cost of energy, as bought from producers, is the single biggest cost for energy providers. NERA Economic Consulting’s analysis of the energy market found that on average, the actual energy makes up around 45% of the total bill. Wholesale gas costs slightly more than electricity.

Transport and distribution costs

Electricity and gas distribution networks transport the energy from the source to your home. Again this is a significant part of your bill at around 22%. Energy distribution costs have fallen in recent years as networks have become more efficient – but the price is still directly controlled by the industry regulator.

Operating costs

Operating costs, including maintenance, metering costs and inspections represent another significant part of the bill weighing in at around 12%. In the near future customers can expect these costs to fall as smart meters are rolled out to homes and businesses throughout the UK, negating the need for annual inspections.

Environmental costs

Environmental charges are added to energy bills to address to social impact of energy and help pay for schemes such as the Carbon Emissions Reduction Target (CERT). Currently environmental costs make up around 9% of the bill, but as Britain attempts to meet its climate change obligations, customers might expect these environmental charges to rise before 2020.

Other costs

The remaining 12% of your bill is two significant remaining costs are VAT and supplier profit. For the most part this is split between VAT (at 5%) and profit (at about 7%) as well as the fee paid to any third party intermediaries. Unsure about the accuracy of your energy bill? We offer a bill checking service.  Call us on 0800 043 0423 or enquire online.