What puts up your energy bill?

Greenpeace UK's Damian Kahya investigates the reasons behind households' soaring energy bills.


By Greenpeace Energydesk’s Damian Kahya; this infographic and article were originally published on Energydesk’s website here

Cost of gas

The figures come from the energy regulator, Ofgem’s “supply market indicator” for March (shortly after the last major changes in bills). Between March 2011 and March 2012 bills rose by around £150. Around £100 of that was due to the higher wholesale cost of gas – which comes under wholesale cost of power in Ofgem’s numbers. As Ofgem explain here the wholesale cost is set by power companies buying and selling fuel and power on the market.

The wholesale cost of gas for heating, is quite clearly, set by international gas prices. But the same also applies to electricity. That’s because the cost of gas feeds straight into the cost of power generated by gas, which in turn is the main variable in the price paid by utilities for all electricity.

Because the price of gas is highly changeable the numbers are updated on a weekly basis – the latest one – doesn’t yet include the bill rises from British Gas and SSE, but we’ll update our figures when they come through next week. It’s worth noting Ofgem compares your bill in any one month to the same month a year ago. Bills this time last year were also high so this year so far shows bills slightly lower.

That is likely to be reversed with this week’s bill rises.


So what about the cost of renewables?

The cost of renewables support isn’t in the Ofgem document – instead it’s merged into VAT, Transmission and Other costs, so we got in touch with them directly.

An Ofgem spokesperson told us:

“In 2004 ROCs accounted for 1.0% of a dual fuel bill. In March 2012,they account for 1.9% of a dual fuel bill.”

Still following? In short that works out at about £25 a year. The Department of Energy and Climate Change (DECC) has published figures for 2011 which suggest that, that year, renewables added about £17 to the total bills. The two sets of data may not be completely comparable, but they suggest that the year on year increase due to renewables is around £8.

And wind?

Again this isn’t broken down – either on your household bill or in Ofgem’s statistics. It is, therefore, almost impossible to give an accurate answer. The key point is that wind only accounts for a portion of the ‘renewables’ element of your bill. Initially far more of this was spent on things like biomass, and we’re still paying for that today.

Renewable technologies are paid for through something called “Renewable Obligation Certificates”, you can work out roughly how much has been spent on any one technology in any one year, therefore, by working out how many have been issued to it. Renewables UK looked into Ofgem’s latest RO annual report and found the average household spends about £7.74 on wind power – you can check their calculations here.

Wait… you’ve missed solar

Solar attracts some of the most generous subsidies of any renewable technology – so surely it’s a big factor driving up bills right? No.

Actually it’s so statistically insignificant that the Department of Energy and Climate change don’t even quantify it. Whilst the subsidy may be generous the pot of cash available is severely limited – that’s why the government keep cutting the subsidies.

And margins…

Ofgem’s rolling net margin figure reflects the amount of money, per year, per customer that it thinks is going to the energy supplier. In March it was about £60, then it fell to £45 – that’s pretty low so now Ofgem think the suppliers will push it up to around £65.

On average, it seems to stay pretty constant but there are accusations that suppliers tend to put the price up when the cost of gas rises, and then keep it relatively high, when it falls – in order to profit on their margins.

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