Where you live impacts the cost of your energy and how expensive your energy bills are. Find out why — and what you can do about this “Energy price postcode lottery”.
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Why do energy prices vary by region?
The reasons are numerous, but there are four key ones:
- The number of customers the energy company has in your area
The first reason, quite simply, comes down to supply and demand. If there are relatively few people in your area, then the per-unit cost is driven up. On the flipside, if the energy company knows they'll be serving lots of customers, then they can bulk buy from generators to serve a densely populated area. This means the cost per unit in these areas tend to be a little lower (see point number two for more explanation).
- The amount of energy the supplier buys from generators in your area
To provide you with power, energy companies buy energy from generators. These purchases are made in advance, based on predictions about demand; so, if they need to supply more at short notice, for instance, it can drive overall costs up.
- The different charges imposed on the energy supplier by your area's distribution network
Local distribution networks help distribute most of the energy that powers homes and businesses in Britain. Energy suppliers pay these local distribution networks a fee for using their services. The main 14 networks in the UK are owned by six companies, each of which may charge suppliers a different fee.
- Energy usage by customers in your area
In regions where it gets colder — for instance in North Scotland - customers on average use more of their electricity for heating purposes than they do in the rest of the country. The network distributing the energy factors this into their costs, and explains to some degree why North Scotland has some of the highest electricity distribution costs.
What do energy prices consist of?
You energy bill may be divided between electricity and gas, but there are other costs that go into your bill, too.
Wholesale gas and electricity is the majority of your bill, making up about 40% of the overall cost. The next-largest factor is network costs (the costs of distributing the energy), and the rest is operating costs (your supplier's overhead), VAT, and your supplier's markup. Finally, you have costs relating to green energy subsidies that energy companies are required to pay by the government.
Therefore, if you are seeing an increase in your energy bills, the largest single factor will be the wholesale cost of gas and electricity, followed by the cost of distributing it.
However, energy companies in Britain are run as private corporations and can raise prices whenever they want.
How can I keep energy bill costs down?
One of the best ways to keep your energy costs down is to use less energy, and there are ways you can save without resorting to wearing a winter jacket to bed.
When it comes to reducing your energy use, make sure you do the simple things first. Ensure all your light bulbs are energy saving, check for draughts around windows and doors, and turn your thermostat down one degree. Discover more energy saving tips in our Energy-saving guides.
Next, look into home insulation to save on energy usage — and energy costs.
You should also make sure you take advantage of any government grants and programmes available to you. If you are receiving a pension, for example, you may be entitled to the warm homes discount.
A really simple way to reduce the cost of your energy bill is to make sure you are on the cheapest tariff. Be sure to compare energy prices regularly and see if your plan is the cheapest available.
Energy suppliers have a range of tariffs offering dual-fuel discounts, discounts for paying by Direct Debit and discounts for managing your account online.
Similarly, different suppliers offer different rates, even in the same area. It doesn’t pay to be loyal when it comes your energy supply — competition is what ensures that energy suppliers don't charge customers too much for their bill.
So don’t be afraid to vote with your feet when it comes to switching energy suppliers.
Which regions are most expensive?
Electricity and gas bills in Britain vary between regions, even if you have the exact same circumstances and use the exact same amount of energy as another household.
According to a report by Ofgem from 2015, the most expensive typical household annual dual fuel (gas and electricity) bill could be found in Merseyside and North Wales of around £1,090.
Meanwhile, the lowest typical household annual dual fuel bill could be found in East Midlands of around £1,037. The difference in bill could typically be up to £62, even with the same exact same circumstances and energy used.
The additional costs per region reflect the different network costs associated in that part of the country.
What is the cost of electricity by region?
Across the largest six energy suppliers, the typical household's electricity bills from around the country can differ from region to region. Discover more about the Big six energy companies guide.
In Merseyside and North Wales, electricity bills tend to be the highest according to a 2015 Ofgem report. In Merseyside and North Wales, the regional transmission charges and distribution charges are some of the highest in the country.
According to the same report, North Scotland, South West England and South Wales come close behind.
The cheapest regions for electricity are East Midlands, Eastern England and London.
The gap between the highest electricity bill in one region to the lowest in another is up to around £60. Find out how much you can save on electricity cost today by running an energy comparison.
What is the cost of gas by region?
When comparing gas bills for households buying energy from the largest six suppliers in the country, the gas prices differ very slightly from region to region.
A 2015 Ofgem report reveals that Southern England and London have the highest average gas bills, with network distribution charges being the main culprit.
Unlike with region electricity prices, gas bills across the region differ by a slightly smaller margin, with the largest gap coming up to around £30. Compare Energy today to find out how much you can save on gas costs.