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With bills on the rise it's become even more important to plan ahead wherever possible - especially for those of us who want to watch our spending. So, we hope this article helps demystify the confusion many of us face when it comes to energy bills.
Studies show that most Brits now allocate more than 6% of their budgets and income to pay for energy bills. Understanding how estimated energy bills work not only allows you to spend money wisely, but it can also help you reduce your carbon footprint.
Energy bills can be a source of confusion to many UK households, whether you own a property or rent one. You might misunderstand the factors that affect your energy bills, how to estimate your actual needs, and how to cut down your costs. You might also be surprised to learn that energy price variations are based on your location.
This article will draw a clearer picture, helping you understand how energy consumption translates into a bill you must pay. We will also discuss changing behaviours, switching suppliers, and considering renewable energy for those who want to save some money.
Let’s start by tackling the first key question: What factors affect my energy use?
According to a study published by Ofgem, a typical household in England, Scotland, and Wales uses 2,700 kWh of electricity and 11,500 kWh of gas in a year.
Understanding your energy domestic usage helps you create a road map to identify where your money is going, instead of paying it blindly.
Several factors will affect your average energy use and accordingly, the amount you pay annually. For example, the domestic consumption of a household of two will be different from a household of four.
Would it be more or less? This is a good question, and the answer might be different from what you’ve expected.
Naturally, you’d expect a smaller household to use less energy. But what if one person is a gamer who stays up late? Or someone has to work remotely and accommodate overseas working hours and they have to work at night?
As a matter of fact, any slight change in the way you live, the people you live with, which appliances you use, and how often you use them will affect your energy bill.
Let’s dig a little deeper into factors that impact your energy bill. The importance of each one of these factors is highly subjective, as they all combine to create one exclusive formula that works only for you.
So, what does it mean?
In simple words: you can’t expect two households of the same size to pay the same amount of money. Personal habits, which appliances you have, and appliance usage frequency will affect your energy bill.
It’s expected that higher energy payments will need to be made when your family grows. More residents under one roof will equal higher energy consumption in a general use case scenario. Think more rooms lit, more loads of laundry, and more usage of kitchen appliances. Consider that any slight change in your family dynamics and household size translates into a change in your energy bill amount due.
All the appliances you use in your household and their energy efficiency rating will impact your average energy use. For example, old beat-up appliances become less energy-efficient with time, adding more cost to your energy bill. It’s also important to consider the energy label on your appliance, with A+++ appliances ranked as the most energy-efficient and G ranked the least energy-efficient.
Moreover, the size and how often you run the appliance will also affect your energy use and the amount of money you pay every year. A combination of the size and rating will determine the exact amount. So, a smaller fridge with a G rating might cost more to run than a larger appliance with an A rating.
Any change in your habits impacts your domestic consumption. For example, adopting a healthier lifestyle where you get at least 8 hours of sleep daily means that you’ll be using less energy and paying less money. On the other hand, a new promotion that requires after-work studies means you’ll use more electricity.
Understanding and estimating your energy can be confusing if you don’t understand energy units. According to a study by Ofgem, energy usage is calculated in kilowatt-hours (kWh), sometimes also called ‘units’. One kWh is enough to power a 100-watt light bulb for 10 hours.
Energy units or kilowatt-hours (kWh) measure the energy consumption on your bills. This unit measures the work done by one kilowatt of electricity for a single hour. The number that appears on your bill represents the amount of energy used for a specific period, and by using online calculators you can have an estimate of your average energy consumption.
Typical Domestic Consumption Values or TDCVs provide a benchmark for the average energy consumption in UK households. These are average estimated energy bills based on household size, property type, average usage hours, and the type of appliances you use.
Comparing your consumption in kilowatt-hours to the TDCVs can be a helpful way to estimate your energy needs. You can use this data to compare your actual consumption to households of the same size.
Yes, how energy consumption is calculated is intriguing – but what’s likely more important to our readers is how much they’ll end up spending! Learning how energy prices work and what factors affect them is the next step.
Several factors affect the equation used to determine the energy price per household. These include the price cap guarantee, wholesale market dynamics, and regional price variations.
All these factors combined will be a guideline to help you understand the number on your bill, and how it can be reduced.
According to recent statistics, the Energy Price Guarantee (EPG) meant that prices people paid for gas and electricity from 1 October 2022 were less than under the original Q4 2022 cap and the subsequent caps for Q1 and Q2 2023. At £2,500 for typical annual consumption levels up to June 2023, it was still 27% above the summer 2022 cap. Gas was 37% higher than in the summer of 2022, and electricity was 17% higher.
So, what does EPG actually mean?
It’s the amount of money an average UK household will pay annually for electricity and gas. This measure temporarily replaced the Energy Price Cap or EPC from 2019 until March 31st, 2024.
The latest data on wholesale gas and electricity prices, the Energy Price Guarantee, the price cap, and prospects for changes to prices in the future are all included in the briefing on Gas and Electricity Prices during the energy crisis and beyond.
When it was first established, the original guarantee of £2,500 was set to be functional for two years. It was set to increase to £3,000 after 15 months.
This measure was to be revised every three months to be adjusted for inflation. As a result, in January 2023, the cap increased to £4,279 a year for an average household in Great Britain, decreasing once again to £3,280 in April to reflect a decrease in wholesale energy prices.
In other words, the government will cover any additional costs exceeding the predetermined cap.
The cap and guarantee are determined according to the consumption of a typical household with an average energy consumption. So, what you’ll pay depends on where you live, how much energy you use, and how you pay your bill.
So, you could definitely pay less than the cap if you’re on a standard variable tariff. If you’re on a set tariff, you could end up paying more.
Prior to Russia’s full-scale invasion of Ukraine in February 2022, there was an increase in demand for oil and gas as economies around the world came out of lockdown. Supply did not keep pace with the higher demand for various reasons. Increased gas prices fed through to increased electricity prices.
Everything that goes on in the international energy market will significantly impact your energy bill. Wars, sanctions, energy alliances, changing weather conditions, and new oil discoveries will lead to a fluctuation in your energy bill over a defined period.
In the wholesale energy market, buyers and sellers determine the supply and demand, which determine the wholesale gas prices. The wholesale electricity price is determined by the cost of the last unit of electricity produced in a gas-powered plant to meet demand.
Every event taking place that is somehow related to energy production, transfer, or usage will eventually impact your yearly energy bill.
Combined gas and electricity bills for standard levels of consumption varied in 2023 from £2,466 in the East Midlands to £2,691 in North Wales & Merseyside. Annual direct debit bills under the price cap Q1 2024 for (lower) typical levels of consumption vary by region from £1,888 in the East Midlands to £1,991 in North Wales & Merseyside.
So, what are regional price variations?
These are the differences in energy prices between one region and the other in the UK. Some statistics show that Yorkshire and the Northern regions have the cheapest energy prices in the UK, whereas people living in the Southern regions pay more.
These variations happen due to several reasons.
As of April 2024, standing charges are set to increase by more than £71 per year. But, as expected, some regions will see more changes than others.
Cutting energy costs is a global demand with benefits reflected on the individual, regional, national, and international levels. The whole world is currently working on improving its cost-saving strategies. So, why is cutting energy costs so important?
The first and most obvious reason is to reduce the amount of money paid per energy bill. By lowering your domestic consumption, you’ll be asked to pay less money. These cost savings can come in handy when you’re dealing with an emergency. At the same time, it leads to a reduction in your carbon footprint.
With a lower consumption, the energy demand will decrease. The gap between the supply and demand will further reduce energy prices for everyone. On a regional and national level, overall energy prices will decrease when people change their habits to become more environmentally conscious.
Higher energy bills require higher public spending on energy plants and price caps. At the same time, they’re related to the increase in pollution emitted from non-renewable energy sources.
Domestic energy efficiency upgrades can significantly reduce your energy consumption and bills. They also increase your comfort and improve the quality of the indoor air in your household. Here’s how some of them work.
Your relationship with appliance usage and how you use energy will have a big impact on your energy bill. Adopting energy-saving habits can reduce your energy consumption, reduce your carbon footprint, and save you cash. Here are some things to consider.
One study showed that you can save about £153.40 by upgrading one light bulb to an LED bulb.
Changing the type of energy you use at home is one of the best ways you can reduce your energy consumption and bill. This is why switching to renewable energy sources will allow you to save cash while operating all your household appliances.
For example, installing solar panels in a 3-bedroom home can allow you to save between £440 and up to £1,005 on annual electricity bills. Paired with reliable solar battery storage, you’ll be able to use this renewable energy source day and night.
The UK government is currently encouraging solar panel and battery installation by offering a 0% VAT on all systems installed from April 2022 until March 2027. This can result in a potential saving of £2,300.
Moreover, as you produce your energy, you’ll be eligible for the Smart Export Guarantee or SEG. As an SEG generator, you’ll receive payments for the energy you export back to the grid.
You can also benefit from the ECO4 Scheme, designed to help low-income households replace their outdated heating systems with new energy-efficient ones, like solar-operated systems.
There are currently 22 active electricity suppliers in the UK, and switching suppliers might help you cut down your energy costs in some cases. When you’re first considering your energy contract, it’s recommended to shop around for the best deals.
Once your contract starts, switching to a different supplier might not be beneficial if you’re already on the lowest rate or you have to pay some cash to end your contract.
Different suppliers offer multiple tariffs to meet different customers’ needs. Even if you don’t own your property, you can switch your supplier and tariff anytime you like as long as you’re up to date on your energy bills. Switching tariffs is possible with the same supplier too, although it might be available for new customers only.
The UK government is currently offering multiple assistance programmes to help people manage their energy costs and bills. For example, households also received the £400 Energy Bills Support Scheme (EBSS) in monthly instalments between October 2022 and March 2023. Here’s a summary of these government assistance programs.
| Programme | Description | Eligibility |
|---|---|---|
| Warm Home Discount Scheme | Provides a one-off discount on energy bills each year | Low-income households, pensioners, and those receiving certain benefits |
| Winter Fuel Payments | Annual tax-free payment to help with heating costs during winter | Pensioners and those receiving certain benefits |
| Energy Bills Support Scheme | Provided a £400 discount on energy bills in 2022-2023 | All households in the UK |
Saving on your energy bills reduces your overall spending and reduces pollution rates. Understanding how your energy bill is calculated and the factors that influence it will help you figure out how it works.
Using an estimated energy bills calculator can help you determine how much your household consumes on a monthly basis.
We hope this article has provided you with a better understanding of how the nature of your household and behavioural habits can impact your energy consumption.
Energy prices are determined by several factors that you should understand to have a clearer picture of what your energy bill reflects. Once you understand energy costs and prices, you can implement several energy-saving strategies for a more environmentally friendly household.
You can save significantly on your energy bill by switching to a renewable energy source and changing your overall consumption behaviour. It’s time to reduce your carbon footprint, save cash, and even make money by installing solar energy panels and batteries in your household.
With the help of Soly, you can cut down your energy spending by £1,300 per year, joining more than 31,000 happy customers who switched to clean energy. Moreover, you’ll have a reliable, independent power source that increases the value of your home in the long run.
