Last updated: 10 September 2020
In this guide, you’ll learn the following:
Why do energy prices differ by region?
How much does gas and electric cost in my region?
What is the average cost of energy in the UK?
What costs make up a typical energy bill?
How can I bring down the cost of my energy bills?
Did you know the amount you pay for your energy depends on which region of the UK you live in? A household in London may use the same amount of electricity as a household in Yorkshire, for example, but the cost of electricity and gas may vary widely between the two.
It’s referred to as the ‘postcode lottery’ – different energy rates for different areas of the UK. For example, electricity prices per kWh might be 15.15p in Birmingham, but 16.52p in London. You might think all energy is the same, but the answer’s not quite that simple. There are generally four key factors that determine the price in each region of the UK:
The number of customers the energy supplier has in the region
One of the key drivers of variable energy prices across the UK is simply supply and demand. If your region has relatively few people, then electricity prices per kWh are driven up. That’s because suppliers can buy in bulk for densely populated areas at a discount, which reduces the cost of energy in those regions.
The energy usage of customers in the region
As you can imagine, different regions of the country have different demands when it comes to energy. In colder regions such as Scotland and the North East, energy customers are more likely to use more of their electricity to heat their homes. This is factored into the gas and electric prices set by your energy supplier.
The charges imposed on the energy supplier by the local distribution network
For a fee, your region’s distribution network assists suppliers with distributing energy. Because the main 14 distribution networks are owned by six different companies, each company is likely to charge suppliers a different fee, which can lead to varying energy prices across the country.
The amount of energy purchased by the supplier from generators in the area
To provide you with energy, suppliers purchase electricity (and gas) from generators in the local area. However, these purchases are made in advance based on sometimes inaccurate estimates about customer demand. If more energy is needed at short notice, the cost of energy may be driven up due to a spike in prices.
Now you know why energy prices differ from region-to-region, how much does electricity cost depending on where you live? Ofgem provides official figures, and in 2018 annual domestic bills for gas and electricity broke down as follows:
|Region||Average cost of electricity and gas per annum|
|Merseyside & North Wales||£1,345|
Of course, it’s important to remember that these are averages, so if you use substantially more energy than others, you’ll end up paying higher energy bills, regardless of where you’re based in the country.
When it comes to gas and electric prices, North Scotland and London will put the greatest strain on your monthly bills. Costs in the South East, Merseyside & North Wales, and South Wales can also be high.
Overall, the North East and Yorkshire offer the cheapest energy prices, while South Scotland, the North West, and the East Midlands also offer excellent value for money.
According to those same Ofgem figures quoted earlier, the average cost of gas in the UK comes out to around £664 per year, while the average price of electricity is slightly higher, at around £666 per year producing a combined figure of £1,330 for both fuels.
Electricity is supplied through energy suppliers and Distribution Network Operators (DNOs). There are 14 DNOs, each of which serves one of the 14 geographically defined regions of the UK. Energy suppliers will use these DNOs to provide customers with electricity, and while each network sets prices, there are regulations to prevent overcharging and stop electricity prices per kWh rising unnecessarily for the consumer.
Gas is supplied through a local distribution network by energy companies. There are eight Gas Distribution Networks (GDNs) across the UK, and as with DNOs, there are regulations to stop GDNs from abusing their monopoly to charge suppliers too much.
At the top level, your monthly energy bill is split between the amount you pay for gas and the amount you pay for electricity. However, there are a wide range of different costs that make up different percentages of the bill, all of which vary slightly from region to region. Here’s a breakdown of what you’re paying for when you pay your monthly energy bills:
|Wholesale costs||38%||The largest proportion of your bill goes to paying wholesale costs, which is the cost charged to your energy company when it purchases electricity and gas.|
|Network costs||26%||This covers the cost of delivering energy to your home from power stations, as well as maintenance for cables and pipes.|
|Operating costs||17%||This covers your energy supplier’s own costs, such as customer service.|
|Environmental and social obligation costs||8%||Energy suppliers are required by law to contribute a set amount of money to environmental initiatives. This portion of your bill covers the cost.|
|VAT||5%||The government tax charged on goods and services.|
|Supplier pre-tax margin||5%||This is essentially the profit margin for your energy supplier, making up the difference between the cost of delivering energy and the amount that you and other customers pay the energy supplier. It also funds tax, debt payments, and other cost obligations.|
|Other direct costs||1%||These include a range of different costs, including intermediary sales commissions and broker’s costs.|
While you can’t change your postcode – unless you were to move, of course – there are many ways that you can reduce your monthly energy bills. First off, check that you’re on the cheapest energy plan in your area. By switching to a more affordable plan, you can drive down the unit cost of electricity (per kWh) and get the best value for money. Consider switching to an Economy 7 plan if you use a substantial proportion of your energy at night, and don’t be afraid to look at energy plans from smaller suppliers, as they’re sometimes more cost-effective than plans from the big six energy suppliers.
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