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Why your energy bill will probably never be £0.00

Tuesday, May 5, 2015

So the basic logic of energy saving is that the more energy you save, the more money you will save too. This statement is true. But, it is quite interesting that if like millions of other households in the UK on standard energy tariffs that you reduce your energy usage by 25% you won’t save 25% on your energy bills. Don’t worry this isn’t my or your arithmetic skills failing, but a quirk of how our energy bills are constructed. I will explain the reasoning for this with a few examples.

One bill.  Two components.

Imagine this scenario, you reduce your energy usage by 99%, you use almost no energy (electricity or gas) for a whole year, so you might reasonably expect that your £1000 bill would be reduced to £10 … wrong. So why is this?

Your standard energy bill is made up of two components: the unit price component and the standing charge. The unit price component is the common sense bit; this is the price of a unit of energy multiplied by the number of units used.

The second component is the standing charge. This is a fee that you pay your supplier to have your energy supplied to you to cover the costs of the meter etc. In many ways the standing charge is similar to the line rental that you pay on your phone bill, and the energy that you then use is like the calls that you make.

An example…

Let us consider an ‘average household’ that uses 3200 kWh of electricity and 13,500 kWh gas on the British Gas Standard Tariff. In this case the details for their tariff would be:

Bill component Electricity Gas
Standing charge (/day) 26.0p 26.0p
Unite rate (/kWh) 13.21p 4.59p

 

Prices quoted for British Gas Standard Tariff (02/05/15) for the post code S7.

In this example their annual bill will be:

Total = (standing charge x 365 days) x2 + (unit price electricity x 3200 kWh) + (unit price gas x 13 500 kWh)

Total = (26.0p x 365 x 2) + (13.21p x 3200 kWh) + (4.59p x 13 500 kWh)

Total = £189.80 + £422.72 + £619.65

Total = £1232.17

If you were able to save 25% on both your electricity and gas use over a year your consumption over the year would be 2400 kWh and 10,125 kWh respectively. Your new bill would be:

Total = (26.0p x 365 x 2) + (13.21p x 2400 kWh) + (4.59 x 10 125 kWh)

Total = £189.80 + £317.04 + £464.74

Total = £971.58

Money saving = £1232.17 – £971.58 = £260.59, as a percentage 21%.

Screen Shot 2015-05-05 at 14.11.41

Though less energy has been used, the standing charges remain a fixed amount and are a higher proportion of the bill after energy saving.

The amount that you pay for your standing charge is a fixed amount depending on the tariff that you are on. As such, when shopping around for the best tariff for you it is important to not only consider the price per unit of energy but also the standing charge. When it comes to trying to saving as much money as possible on your bills we have to consider two things: how to reduce energy, and secondly, make sure you are paying as little as possible for the energy that you are using. We discussed switching energy and the potential savings in one of our last blog posts.

Over to you

Have you tried to save energy but been disappointed by the amount that you have been able to save on your bills? We want to hear your stories, advice and questions, so please do share them on our Forum. Remember that if you have a question you can contact us directly, or through Twitter and Facebook. By sharing this article (using the social links below) you are spreading the energy and money saving message, and could help others save too!

  • Andrew Timmis
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    Andrew Timmis
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