Components of an energy bill

The latest round of energy price rises has brought increasing focus on the different elements that make up a domestic energy bill and particularly which are responsible for these price rises. This note describes the different component parts of a domestic energy bill and summarises existing estimates of the contribution of each part to current bills and contributions to past bill increases.

There appears to be little consensus in the public debate about the cause of recent price rises or the makeup of current bills. However there is broad consistency between published estimates, particularly of the component parts of current bills and the reasons behind longer term price rises. The different interpretations appear to be largely due to the use of imprecise or ambiguous terms, especially around environmental and social costs and tax. There remains less consensus about the reasons behind the latest price rises and certain elements of bills, particularly company profits.

Looking across the different current estimates of the component parts of a typical domestic dual fuel energy bill gives those following breakdown:

-Wholesale costs 46-48%

-Network costs 20-23%

-Environmental and social levies 8-10%

-Supplier costs 9-10%

-Supplier ‘profit’ margins 3-5%

-Other costs 4-5%

-VAT 5%

This note is concerned with gas and electricity bills for domestic consumers only. The note Energy Prices gives much more detail on the timing and extent of price rises, alongside data on other fuels and international comparisons.

Future updates of this note will extend its coverage to forecasts of price changes to 2020 and the different contributory factors behind this and a section on the contribution of wholesale costs.