With households across the country being financially squeezed from every direction, the rise in energy bills are a cause for concern for thousands of families. The beginning of the month brought uneasiness for many as the increase in the energy price cap - the maximum companies are allowed to charge - increased the cost of the fuel and the standing charge users pay every day
Amid warnings of a further jump later this year in October, energy bosses have called for more Government support for households facing a 'truly horrific' winter. Michael Lewis, chief executive of E.ON, warned that up to 40 per cent of households could be in fuel poverty by the end of the year.
He also recently told MPs his firm was 'expecting a severe impact on customers' ability to pay,' adding that he expected debts of customers to rise by 50 per cent - or £800m. Around one in 10 per cent of UK households are reportedly suffering from fuel poverty at the moment.
READ MORE: Citizens Advice: How to use a food bank if you're struggling to feed your family
Amid all this uncertainty, we've taken a look at what goes into making up the total cost of this bill, alongside the gas and electricity itself.
Why are energy bills rising?
ChronicleLive reports that there was huge pressure on suppliers in 2021 as wholesale prices increased substantially, resulting in the UK's energy price cap rising by just under 50 per cent in April. The invasion of Ukraine by Russia, which is the world's largest natural gas exporter, has only made matters worse.
Energy providers have also been forced to shoulder the costs after 29 energy providers went bust in 2021, including Bulb Energy, which had 1.7 million customers. As millions of customers were absorbed by the remaining energy providers such as British Gas or EDF, the additional costs associated with the bailouts has been pushed onto existing customers' bills.
Why are standing charges going up?
With standing charges are going up as well as the price per unit of energy, families have been left frustrated that their bills have still shot up even if they have taken steps to reduce how much energy they use.
The costs are soaring partly because of the “supplier of last resort” scheme – every household is expected to pay the billions that have gone into rescuing customers from failed companies.
“Regulatory changes ordered by Ofgem were already set to add around £30 to each customer’s standing charge,” says Andrew Enzor, managing consultant at energy analysts Cornwall Insight. “Since then, there have been a wave of company failures, with each one requiring a bailout, the cost of which is being shared by all consumers."
How are energy bills calculated?
There are a number of costs which are considered including wholesale costs, network costs, social and environmental obligations, policy costs and operating costs among others. The biggest cost of your bill is the wholesale costs of the fuel itself, which have been steadily rising since last August and look likely to increase again in October.
The next largest chunk of the typical customer's bill goes towards providing and running energy infrastructure, such as pylons and gas pipelines. Network companies charge your supplier an Ofgem-regulated price for their use of the energy network.
In terms of social and environmental obligations, larger suppliers have to help pay for Government energy policies. These costs could go towards schemes to support energy efficiency improvements in homes and businesses, help vulnerable people and encourage take-up of renewable technology.
Policy costs covers energy company obligation schemes, which pay to upgrade home insulation for households on low incomes; as well as renewables obligations, which require suppliers to get some of their electricity from renewable sources. These costs also cover the Warm Homes Discount scheme, which will pay vulnerable households £150 next winter.
Other direct costs include:
- Third-party services, such as sales commissions and brokerage
- Meter maintenance and installations
- Administration
- Wider smart metering programme costs
- VAT
