Are You Aware of What Is Impacting Your Electricity Prices? Here’s a Guide to What You Need to Know!

Over the last few years, we have seen quite significant changes in the cost of electricity and the final charges that you see on your contracts that feed through to your bill. When budgets are tight it is important to understand the impacts of the costs that make up you bill and what you can do to try to mitigate them.

So, what are these and what drives the changes.

40% of your bill is the actual energy, so the electricity that comes into your premises. In the UK we have a central electricity wholesale market where electricity is traded daily rather like the stock market. Influences on the cost of electricity are impacted by what is going on in the economy, world events such as Covid and the weather. Electricity costs have some links to the cost of oil and gas. This is because over 30% of the UK electricity is generated by gas. Solar, wind, bio energy and nuclear being the other major sources. Last year we saw a large reduction in the cost of gas and electricity in April due to the Covid lockdown.

The other charges that make up the bill are what are known as non-energy or third-party charges. These are a mix of charges, a major part of these cover the distribution of the energy from the power station to homes and business. The cost of these are fixed and regulated by OFGEM (the government regulator). These charges have seen increases over the last few years as the network is constantly being reinforced and upgraded to support the new renewable generation. There are new changes in these coming in force in 2022, but for those customers on fully fixed contracts these charges have been built in, so there is no need to be concerned. If you are on a pass though contract you are likely to see some changes in these from April 2022.  We would advise you to ask your energy supplier on how these may affect you.

The other main charges are environmental charges set by the government. These are in place to support the development and implementation of new generation in particular renewable energy such as wind and solar. These are increasing each year and now make up quite a significant part of the bill. Consequently, over the last few years customers’ have generally seen year-on-year increases in the cost on their electricity contracts.