What costs make up your energy bill?

Energy firms do not have control over all of the costs that determine our bills Photo: Rui Vieira/PA Wire

It is pretty much inevitable that this afternoon politicians and executives from the power companies will throw around statistics, hurling numbers at each other to try to make their case. Before the sessions get going, here is a bit of context about what has actually gone on in the last few years, and why.

What consumers know, to their cost, is that bills have gone up by a very significant margin in the last few years. The latest price rises for this winter's bills average nine percent.

Why? It is easy just to blame the firms for making too much money, but it is not that simple.

Our bills are made up of lots of different costs:

  • 48% wholesale costs
  • 23% distributing energy around the networks
  • 8% for government schemes to help poorer families with their bills and subsidies for green energy production
  • 5% VAT
  • 13% costs to the supplier of running the service and their business (the company you pay your bill to)

That leaves roughly five percent of their margin, which is the money they make.

More gas is being imported from further away, adding to costs Credit: Chris Ison/PA Wire

Those costs the companies can't control have changed dramatically in recent years:

Wholesale costs

The price the companies pay for the energy only increased by about £10 on an average bill last year, and expect MPs to quote that at executives today. But this year, Ofgem predicts gas wholesale prices will go up by eight percent, and electricity by 13 percent. In the last decade, the wholesale cost of electricity has gone up by 140 percent, and gas by 240 percent.

Environmental costs

In the last 10 years, environmental and social costs have gone from adding around £10 to your bills, to around £100. Last year, those costs increased by £10 on the average bill to £115. Those costs are set by the government, and are the portion of the bill that the coalition is looking at tweaking.

Network costs

The cost of maintaining and improving the network costs has gone up £15 per average bill since 2010 and now represents about £300 on the average charge.

Government charges to boost energy efficiency and low-carbon power add a cost Credit: Carmen Jaspersen/DPA/Press Association Images

There are plenty of extremely valid questions to be asked about how efficiently the energy firms control the rest of the bill, and how transparent they are about the financial dealings between the generating parts of their business that runs and owns power stations, and the 'retail' parts that actually sell it to us.

And frankly, years of customer service that has fallen far short have left the firms open to accusations of treating customers badly, and breaking their trust.

But there are significant parts of the bill that they cannot control. Whatever MPs say later on, the debate about what to do to ease our energy costs, which are crippling for some consumers, is poorer without acknowledging that.

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