Electricity bills: where does your money go?

Electricity Bills

With the average UK electricity bill standing at £603 a year, chances are you won’t have failed to notice the regular payments disappearing from your account. But do you really know what you’re paying for?

 

The number that ends up at the bottom of your electricity bill is representative of a whole host of different elements, each crucial to the effective transmission of electricity to your home. According to the latest figure from OFGEM for the UK electricity market, here’s how your electricity bill is made up, and what you’re actually paying for:

 

Where does the money from my electricity bill go?

 

5 per cent of your electricity bill is VAT

Here in the UK, we have an incredibly low rate of taxation on our electricity, in fact one of the lowest in Europe. Despite paying 20 per cent VAT on most things in our lives, our electricity is only taxed at the lower rate of 5 per cent, as it is deemed to be an ‘essential to life’ item.

 

37 per cent of your electricity bill is the wholesale cost

Electricity companies need to buy the energy from the people who are generating it, and this cost makes up just over a third of our electricity bills.

 

24 per cent of your electricity bill is network costs

Electricity is generated at many different places around the UK, and needs to be moved around the network to ensure the whole country has coverage all the time. This movement is done by the National Grid, and sometimes other operators, who then bill the energy company, who in turn charge us. This is known as the network costs, and makes up around a quarter of our overall bills.

 

13 per cent of your electricity bill is operating costs

Our energy companies need money to run, from producing bills to customer service and everything in between. The funding for this will vary from one energy company to another, but the average according to OFGEM figures is around 13 per cent of our total electricity bill.

 

12 per cent of your electricity bill is environmental and social responsibilities

The environmental and social changes added to your bill pay for things like energy efficiency schemes for households, fuel poverty initiatives and investment in renewable energy. They may also include things like the EU Emissions Trading Scheme, which aims to reduce the amount of carbon being produced by electricity generation. 12 per cent of your energy bill goes towards this.

 

8.6 per cent of your electricity bill is profit

Some energy suppliers claim that they take as little as 5 or 6 per cent profit from their business, but OFGEM figures for the past 12 months indicate profits in this sector have been high. On average, 8.6 per cent of your electricity bill is going straight into the pocket of your supplier.

 

Electricity Bill Breakdown

 

VAT

4.81%

 £        29

other

0.17%

 £          1

Operating costs

13.43%

 £        81

Environmental and social

11.77%

 £        71

Network

24.21%

 £      146

Wholesale

36.98%

 £      223

Margin

8.62%

 £        52

Revenue

 

 £      603

 

So there you have it; your electricity bill and all the various things it pays for. Were you surprised by anything? Do you think there should be more (or less) spent in certain areas? Please let us know.

 

Want to find out more? Those nice people at OFGEM are very keen that you become an ‘energy shopper’. Check out their latest video for an informative, impartial guide to choosing your energy supplier:

 

 

 

Eco Stores Direct are here to bring you the very latest in energy news, views and opinions from across the UK. They are also suppliers of energy efficient electric heating solutions and are constantly assessing the market for the best products and the latest ground-breaking technology which they think will make a real difference to their customer's homes. Eco Stores Direct are devoted to helping you reduce your carbon footprint and bring down your energy bills and they work hard to raise awareness of energy efficient products that can make all the difference. If you're interested in energy efficient electric heaters or infrared panel heaters, call Electric Radiators Direct today on0330 300 4444 for a free assessment. 

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