- We show where every penny of the average £1,135 annual dual fuel bill goes
- The majority of your bill, some 38%, is made up of wholesale costs
- Maintaining the vast supply networks takes up roughly 26% of your bill
- Green and social taxes to prop up renewable schemes add another £90
Every time energy firms hike prices they blame punitive green taxes imposed by the Government.
Just last week British Gas said the levies will add £200 to your bill by next year.
Here, we use official data from energy watchdog Ofgem to show exactly where every penny of the average £1,135 annual dual fuel bill goes…
We used official data from energy watchdog Ofgem to show exactly where every penny of the average £1,135 annual dual fuel bill goes
Buying fuel: £431
The majority of your bill, some 38 per cent, is made up of wholesale costs. This is how much it costs suppliers to buy energy, which they then sell on to you.
The price suppliers pay fluctuates widely depending on issues such as demand, supply, politics and global events.
But this is not always perfectly reflected in household bills because big companies tend to buy a lot of the energy they need well in advance.
So if you are on a standard tariff, for example, the fuel running into your home now might have been bought at any point up to about three years ago.
This is why when wholesale prices plummet, we do not always see an immediate reduction in our bills.
Some 38 per cent of your bill is made up of wholesale costs. This is how much it costs suppliers to buy energy, which they then sell on to you
Many smaller suppliers don’t have the ready funds to buy energy so far in advance and so tend to pass on changes to wholesale prices to customers more quickly.
Until 2011, just over half of your bill went towards covering the cost of the fuel.
But as other costs faced by suppliers have risen, the proportion of the bill spent on actual fuel you use has now fallen to 38 per cent.
NETWORK COSTS: £295
Energy companies are responsible for maintaining the vast network of wires and pipes that carry energy around the country and into our homes.
This is expensive, taking up roughly 26 per cent of your bill, with new pipes, cables and electricity pylons regularly installed. So firms pass on these costs to customers.
To keep customer bills down, energy regulator Ofgem limits how much the transmission and distribution companies, which run the network, can charge energy firms for this maintenance.
It does this partly by restricting how much profit they can make. However, the regulator came under fire in September for allowing companies including National Grid to pocket a 39 per cent profit margin.
grid: Maintaining the vast network of wires and pipes that carry energy around the country and into our homes takes up roughly 26% of your bill
Mark Todd, of energy switching company Energy Helpline, says: ‘Network costs have been on the rise for years and have gone under the radar. They will soon make up as much of your bill as paying for the raw materials.
‘Suppliers are making a lot of money by charging for something that is already built and simply needs to be maintained.’
GREEN AND SOCIAL TAXES: £90
Energy companies are under huge pressure from the Government to use more power from cleaner, greener sources to combat climate change.
Firms say the costs associated with this, about 8 per cent of your bill, are a major reason for rising household expenditure. Generating energy from renewable sources, such as wind turbines or solar panels, is up to three times more expensive than if they used coal-fired power stations.
Mr Todd says: ‘For example, it costs £40 to keep 1,000 light bulbs lit for an hour using fossil fuels.
To achieve the same result with an onshore wind turbine is £80; a nuclear power plant is £92.50 and an offshore wind turbine is £120.’
Firms have social obligations and are required to help vulnerable customers with energy saving measures such as free or cheap loft insulation, double-glazing and new boilers. And they provide some low income households with discounts on bills.
The Committee on Climate Change (CCC), set up by the Government to offer independent advice, estimates that these schemes would add £140 to an annual household bill, rising to £174 by 2020 and £205 by 2030.
Generating energy from renewable sources, such as wind turbines or solar panels, is up to three times more expensive than if they used coal-fired power stations
But last week Iain Conn, the boss of British Gas parent company, Centrica, claimed so-called green taxes will add £200 to each household bill by next year.
The Government’s business and energy department says it does not recognise this £200 figure. It points to research by the regulator, Ofgem, which puts the cost at £90 a year.
And the Treasury said in last week’s Budget that no new green levies will be added to household bills until at least 2025.
RUNNING COSTS AND METERS: £193
This section of your bill, up to 17 per cent, covers the costs suppliers incur in running their own business — marketing, sales, staffing, billing and metering costs, for example.
The cost of the smart meter roll-out is also included in this part of your bill. Under instruction from the Government, every UK household must be offered a smart meter by 2020.
The meters automatically send readings to your energy supplier and let you monitor power use.
It’s hoped they will put an end to estimated bills and encourage households to cut consumption. But it is expected to cost the industry more than £11 billion and push up bills initially.
PROFIT MARGIN: £57
The profit margin, 5 per cent, is how much your energy company makes before interest, tax and debt repayments are deducted.
Many suppliers make profits in other areas too. For instance, British Gas’s parent company Centrica owns Morecambe Bay gas fields. It extracts gas from the ground, and effectively sells this to itself and to other providers. The profit made is not included in the company’s pre-tax margin.
Just like with most bills, you have to pay tax on the total cost. On your annual household energy bill, VAT comes to about 4.76 per cent.
OTHER COSTS: £12
A small portion of your bill, 1 per cent, covers a range of behind-the-scenes work involved in buying and selling energy on the wholesale markets and transmitting data between smart meters and providers.
The commission that price comparison websites charge suppliers to advertise their deals online are also passed onto customers.
Courtesy: Daily Mail Online