Not so long ago, British Gas released a pictogram breaking down all the different costs that go into your energy bill.

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We keep that cardboard cutout on our desk at all times, not least to fend off any burglar who might creep into our office late at night. Look at me above – terrifying, right?

This week, with prices rising, we decided to stop waving it about and start explaining it.

Here is what’s driving up your energy bill – and what you can do to lower it.

1. Wholesale prices i.e. the cost of the actual stuff that fires up your kettle.

Your supplier has to pay for the energy you use. And there are changes in the energy wholesale market, much as there are in any other market. 

Note also that Britain is a big importer of energy, so a falling pound can mean paying more money for the same energy.

What can you do about it?

Unless you have a direct line to OPEC, or a close relationship with Vladimir Putin, you can’t do much to control the wholesale energy price.

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However you can protect yourself against its fluctuations by getting a ‘fixed term’ deal. Then no matter what happens in the wholesale market, your price won’t change until your fixed term deal is up. The only kind of deal whose price a supplier can increase is a ‘variable’ deal.

The thing is, 70% of the population are on variable deals. So if that’s you, get a fixed term deal already!

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2. Distribution costs i.e. getting the power into your house.

Energy suppliers have got to get that energy round to your gaff. That’s why there is a network of pylons, poles and underground cables running across this green and pleasant land.

Your supplier has to pay to use these connections, as they are owned by energy network companies. And they pass that payment cost on to you.

What can you do about it?

Nothing.

And that sucks. Because many of these networks are natural monopolies. And even though their prices are regulated, there are some that say Ofgem aren’t policing the charges as ferociously as you might like.

Last year, even British Gas complained that they were being ripped off for what is really quite a basic, plodding service.

Oh, the irony.

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3. Operational costs i.e. replacing your supplier’s stolen stationery and paying its CEO £1m a year.

You know when you call your energy supplier to ask what your energy bill means, and you wait 45 minutes listening to a panpipe remix of Kylie Minogue’s I Should Be So Lucky?? Well all around that ringing phone, there are thousands of people working their backsides off to help you. 

Larger energy companies have workforces the size of an army. This is a legacy of their days as a public utility. Compared to some other companies, these ancient leviathans are not especially inefficient.

Even we see it. The Big Deal is in constant contact with all suppliers, negotiating brilliant deals for our wonderful membership. There is one big supplier that has three people employed specifically to tell us to sod off. And at least one of them is out of office at any given time.

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What you can do about it?

Switch to a company which is more efficient, and which doesn’t pay millions of pounds to milk-guzzling fat cats like the chap above. Typically these companies are the newer, independent ones.

Take your pick on our super simple switching pages.

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4. Social and environmental policy costs i.e. government schemes.

Don’t want anyone’s gran to freeze this Christmas?

I should hope not. That’s why we have the Warm Home Discount.

Don’t want to condemn future generations to a smog-shrouded future of runaway climate change?

Good. That’s why we have things like the Renewables Obligation and Contracts for Difference. These schemes get renewable energy generators building a sustainable (and secure) energy system that will benefit our kids as well as us.

What can you do about it?

Join Sarah Palin in saying that climate change is a myth?

Demand the government tell freezing pensioners throw on another cardigan?

Come on. You’re better than that. We just have to hope that government delivers these policies as efficiently as possible. According to the National Audit Office, that’s not always the case.

 

5. VAT i.e. VAT

VAT on energy is 5% right now. 5% on a bloody essential good. 

There’s no VAT on water. There’s zero VAT on bingo, fer chrissakes! So why should there be on energy?

What can you do about it?

Join us in demanding that Boris Johnson keep his Brexit campaign promise and cut VAT on energy to zilch!

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6. Profit margin i.e. how much your supplier is making out of you.

In British Gas’s cardboard pictogram, they claim to make 4% profit on the average energy bill.

And if that’s their profit margin on a standard variable deal, then I’m a monkey’s uncle.

The truth is that they make no profit at all on their cheap, fixed deals and huge profit margins on their expensive, variable deals.

What can you do about it

Make sure you’re not one of the poor souls on their variable deal!

If you haven’t switched for a while, that’s where you’ll be. And they’ll be making a nice fat profit out of you.

Get yourself onto the cheapest deal on the market, sharpish. Then no-one is making any profit margin out of you and yours this year.

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