Understand your electricity bill
In today’s Whiteboard Friday, find out with our energy expert Guy Thompson, who you pay and what you pay for when you pay your electricity bill.
“Good afternoon and welcome to MyUtilityGenius Whiteboard Fridays. My name is Guy Thompson, I am Product director, we thought the best way to start our Whiteboard Friday would be to provide you with some context and understanding of the industry you are getting involved in when you switch your gas and electricity and when you try to deal with the energy market.
We are going to start with the electricity, hence “Part 1 Electricity” and we will start with simply the infrastructure of how it works because most people don’t understand that… So we start with your house here, this is you, this is the generator. There are lots of different types of generation: capacity, coal, nuclear, gas… The key thing about this is that they are generating through turbines, it comes up to the National Grid. National Grid is a spine of transmission cables that run across the country, moving the electricity at around 400,000 volts. So this moves along the country, comes down to the local DNO which is the Distribution Network Operator who is the localised person. They set this down using transformers and substations. Ultimately, it comes out of your plug at 220 volts. So this is effectively the journey the electricity takes to get to your door. So you have: generators, transmission company which is the National Grid and you have these guys who are the DNOs, the Distribution Network Operators.
You don’t know any of these people, because you don’t pay any of them… Where does the money go? Well, that’s where the Big 6 and the other energy suppliers step into the frame. This is where your money is going. You are paying out on a monthly basis, Direct Debit, however it may be: you are paying out one of the Big 6. What they are doing: they are disbursing that money to all the people involved. They send it here, to the generators where they are buying on the wholesale market. Every time you hear about the wholesale market that everyone blames for anything, well it is this bit here. Some more of your money goes to the National Grid and some of it goes to the DNO. These 2 here, are dealt with by OFGEM. So OFGEM is regulating the cost here. So this cost is regulated, this is the trade market… You are paying these guys and they are paying somebody that everybody loves, the HMRC. They are paying things like Feed-in Tariffs, Renewable Obligations. These are effectively the subsidies areas that you are paying. The Big 6 are some of the biggest collectors of taxes in the UK.
So when you get a bill, it is sent by these guys but these guys are nothing more than very large billing engines with 5 million or more customers, they have very strong credit facilities because they are buying electricity for you and you are not only paying them a month or 3 months after you have used it. They also have very sophisticated IT systems. But in a nutshell, out of all the money that is disbursed here, the average annual energy bill, which is £1,300, the suppliers are making between £40-£100 profit.
That is effectively what you pay for in your electricity bill.
Next we ll have a look at part 2, gas…”