Understand Energy

Being able to understand energy markets, your bills and how switching suppliers works can be complex, especially when no-one tells you what’s what or who is who in the zoo.

An outsider looking in would probably conclude that buying and paying for energy in the UK was some kind of IQ test set by a malevolent being in preparation for an advanced degree in mathematics and applied logic. This is not the case; an ability to add, subtract, multiply and divide makes you over-qualified for understanding the rudiments of energy prices and understand energy markets that you need to know to make an informed decision. The single biggest take-away from this section should be the age old truism of Garbage In, Garbage Out, where garbage in this case is inaccurate meter readings and therefore consumption.

Your energy bill is a function of TWO variables:

  1. Price of Energy Services
  2. Volume of Energy used

your energy bill

At a simple level you can affect your energy services costs (the price) by changing the following elements: Who you buy from (the supplier); How much certainty of price do you want and at what price (Fixed vs variable tariffs); how much operational cost do you want a supplier to carry in return for doing things how YOU like them (Direct Debit vs Standard Credit and online only accounts vs traditional paper); and how environmentally conscious do you wish to be (variable greenness of different tariffs).

You can measure your purchased consumption (volume of energy bought from a supplier) by smart meters, using supplier actual reads or doing your own meter reads regularly, using a consumption estimator tool based upon the type of life you lead and the type of house you lead it in, or lastly you can rely on supplier estimates of your consumption. As you can imagine these are laid out in descending order of accuracy! Once you know your consumption you can then set about reducing it through behavioural changes (switching the lights off etc), energy efficient asset investments (energy saving light bulbs, insulation a new boiler etc) and energy producing asset investments (solar panels, ground source heat pumps etc).

The media doesn’t seem to understand energy either and focuses much of its attention on the profits made by suppliers and the apparent disconnect between the wholesale price of energy and the retail prices we see on our bills or on comparison sites. The reality is that you can do nothing about either of these things and nor can they (the media); especially when there would appear to be some fundamental media misunderstandings surrounding both aspects which you can explore at your leisure under the Energy for Geeks section.

We respect those who don’t wish to understand energy as a whole. If all you want to know is who you are paying and why, have a quick look at our Energy for Dummies section.

Furthermore if you look at our Understand your Energy Bill section that should give you the means to ensure that you undertake any switching activity with the correct information; and it should more generally provide some clarity to what can be a pretty tough 3 pages to get your head around. In this section we seek to answer the most frequently asked questions you may have regarding the energy industry and suppliers. We thought you may be interested to know how energy arrives in your home, the regulatory regime in which suppliers operate and how you and suppliers interact with one another. We also breakdown your average utility bill and clarify how your energy bills are put together so you can understand what you are paying for.

Should you have any other questions on any part of the energy market that confuses you, or if you still don’t understand energy after reading this section then please drop us a line and the Genius will get back to you; provided that he has the answer of course!

Source: OFGEM
EBD booklet
EBD facilitator background notes