How is your energy bill actually calculated?

energyhelpline shares their knowledge to help you understand how to read your energy bill.

Energy bills are really confusing, don’t you think? In fact, a recent survey from USwitch identified that many people believe their energy bills are the most difficult to read out of all their bills and around 60% of people still don’t understand how their energy bill is calculated[1].

With energy suppliers sometimes providing inaccurate billing and with people not being able to double-check their bills, the worst case scenario is that customers could be overpaying on their bill and not even know it.

With any luck, using our short guide to calculating energy bills, you’ll be able to understand your bill in no time at all.

The big questions are ‘what goes into an energy bill?’ and ‘how exactly is a bill calculated?’

A bill is often made up of usage, unit rates, standing charge, VAT and discounts.

Usage

Usage is a key part of calculating your bill, as energy is billed on the amount you use. This is why it’s important to give regular meter readings (we recommend once a month…), as it enables your energy provider to produce an accurate bill based on what you’ve actually used instead of estimating.

Unit Rates

Energy usage is measured in kilowatt hours (kWh) and rates are priced per kWh used. For example, if the unit rate is 8 pence per kWh and you use 1000kwh a month, this would amount to £80 of your monthly bill.

Making it that bit more confusing, unit rates vary depending on where you live, which is why you need to include your postcode when switching tariffs or suppliers. Fortunately, suppliers are obliged to include your unit rates for gas and electricity on every bill, so they’re easily accessible.

Standing Charges

The standing charge on your energy bill is used to cover the cost of providing your home with both gas and electricity. These costs include the price of keeping your home connected to the energy network, carrying out meter readings, maintenance and other related charges.

VAT

The standard rate of VAT on the goods and services we buy is 20%, but thankfully we pay a reduced rate of 5% on energy. This is also added onto our bills.

Example of a bill calculated

Below is an example of how you can calculate your annual bill. The supplier and tariff we are looking at is British Gas’s most expensive standard tariff for someone living in Yorkshire, who uses both gas and electricity, and pays by monthly direct debit..

We’ll be basing usage levels on the medium household usage defined by Ofgem, which is 3,100 kWh for electricity and 12,500 kWh for Gas.

The standing charge for gas and electricity is £94.93 each, so £189.86 a year for both.

Unit rate for gas is 3.69p per kWh, adding up to £462 a year.

Unit rate for electricity is 12.285p per kWh, adding up to £380.84

British Gas offers a £15 annual discount for customers who use them for gas and electricity.

This totals an annual bill of £1,017.70 or approximately £85 a month.

Get the best deal

To make sure you’re energy bill doesn’t send you into a panic this winter, join the Big Noddle Energy Switch. Register your interest here and we’ll negotiate a competitive, low cost energy deal on your behalf. The more people that register, the better our chance of getting a great deal.

 

[1] Research was conducted online by Opinium on behalf of USwitch between 15th and 19th February 2016, among 1,756 UK adults.