All You Need To Know About Electricity Bills in The UK

Whether you’re a first-time renter or buying your own home in the UK, understanding your electricity bill is crucial to keeping on top of your finances. While the process of switching energy providers has been made simpler in recent years, deciphering your bill is still a mystery to many. This is especially so in the UK, where electricity bills can be long and confusing.

In the UK, you pay your electricity bill directly to the providers. The average annual electric bill for single-person households is about £600, while gas will cost you less – around £550 per year. Average households (2,4 people) spend about £764 on electricity.

In the UK, when you live in an apartment by yourself, you will need to pay bills on your own. Tenants deal with their bills for various services and utilities. Here’s a quick guide to reading – and deciphering – your UK electricity bill. We also explain how much electricity costs in the UK and how you can pay for it.

UK electricity bill: full breakdown

Most bills will be itemized in the UK, so you can see how much you’re being charged for each unit of electricity used. The statement will show a standing charge, a daily fee for having an electricity supply.

The charges will be shown in pence per unit (p/kWh), and the standing charge will usually be given in pounds per day.

Generally, your electricity not only covers the cost of the energy you have used in a month but has much more elements to it. It includes VAT, government charges for green and social initiatives, plus your energy company’s running costs.

According to Ofgem, the energy regulator in the UK, electricity bills comprises six costs. The ‌total of these six components represents your electricity bill in unit rates and standing charges.

• Wholesale costs

Energy providers buy electricity years or months in advance at wholesale prices from suppliers. Due to changes in weather ‌and economic events, these wholesale prices keep fluctuating. These costs make up close to 1/3 of your bill.

• Network costs

Network costs cater to electricity distribution from the suppliers to your home or business. This is the cost you pay for the cables that carry electricity. Network companies charge suppliers so that they can raise money to use in the maintenance and running of these networks. These costs vary from year to year.

• Environmental and social obligation costs

These are costs used to support vulnerable citizens and various government initiatives such as Renewables Obligation (RO), which focus on electricity projects.

• Operational costs

Suppliers set their costs in such a way that they can make profits and meet their operational costs. These costs cover customer service, meter readings, and the overall costs of running a retail energy business. 

• VAT – Business electricity has a VAT standard rate of 20%.

Value Added Tax is the additional government tax on electricity. For commercial electricity use, the government has other taxes, such as a climate change levy. The climate change levy is currently at 0.775 p/kWh, and it’s applicable to each unit of electricity used.

• Other direct costs

Direct costs cover:

1. Third-party services like a brokerage.
2. Installation and maintenance of meters.
3. Data and administration costs. 

The cost of electricity in the UK can significantly differ between providers. Hence, it makes it worthwhile to compare various energy plans.

How much is the average electricity bill in the UK?

The average annual electricity bill in the UK is about £764, with Merseyside and North Wales areas recording the highest with an average of £810 per year. The average electricity bill per kWh is about £21 p/kWh. 

Your monthly energy costs in the UK will depend on where you live (postal code), what type of apartment/house you live in (also the size of the apartment), the ‌appliances being used, and how many people live with you.

Households use more units of electricity during weekends than on weekdays.

Average electricity consumption also depends on the weather. Electricity bills are higher during winter months because extreme weather like snow damages power lines. The costs incurred in repairing these power lines are high, leading to increased electricity costs during cold seasons.

In the UK, a single-person household typically pays about £600 per year for electricity.

The unit cost of electricity in the different regions is‌:

The cost of electricity in the UK varies with region depending on the:

• Availability of renewable energy and fossil fuels.
• The cost of generating electricity.

The average electricity bill for a 2 bedroom houses

The average electricity bill for a two-bedroom home is £560 a year. Although the electricity usage for a two-bedroom house ranges between 2000 and 2500 units annually, the consumption depends on the number of people occupying the house and their schedules.

Those who work from home will have a higher consumption rate than those working from their offices.

The average electricity bill for a 3 bedroom house

This is a medium electricity consumption household that uses an average of 3100 kWh of electricity per year. The average electricity bill for a 3 bedroom house is £650 per year.

Rise in the electricity bills in the UK in 2022

Apart from the global energy crisis, the UK is experiencing the following issues, which have taken a toll on electricity prices:

• Low winds which translate to a low generation of renewable energy. There are frequent outages at several nuclear power stations, so a large percentage of electricity generation in the UK uses gas for its generation. 
• There was a fire outbreak in Kent, which knocked out a power cable connecting England and France. The cable imports electricity from the continent, and it will not be running until 2023.
• The UK’s gas reserves are so low when compared to those of other European countries, meaning it’s hard to stockpile gas for use when the need arises.

Following the Russian invasion, wholesale energy prices have escalated. Global happenings, such as natural disasters and wars, influence energy prices.

The reason ‌this conflict is affecting the energy bill in the UK is that Europe relies on Russia for gas. The UK doesn’t rely so much on energy from Russia; it sources most of it from Europe.

As a result, any price increase in Europe will translate to a corresponding rise in the UK. This conflict has caused fears within the energy market, with wholesale energy prices rising by about 33%, forcing some suppliers to close down businesses.

UK households will see a 54% rise in Standard Variable Rate Tariffs from April 2022 after the UK revised its energy price cap. This will mean a £693 increase in the average standard variable tariff annually. Those using prepaid meters will see an average rise of £708 annually.

Usually, the price cap level affects about 11 million households, but in 2022, it’s estimated to affect close to 22 million homes. This is the highest price cap level ever recorded since its introduction in 2019.

As the UK continues to recover from the effects of the COVID-19 pandemic, the demand for electricity increases. However, this demand is more significant than the supply, leading to increased electricity costs. This problem worsened during winter, and the fact that renewable energy sources provide less power.

This rise in electricity prices has driven many energy suppliers out of business. Three months ago, 28 energy companies closed down, and several energy suppliers incurred losses.

How to pay electricity bills in the UK

In the UK, energy suppliers offer their consumers different ways of payment for their electricity bills. You can choose the way that suits you better.

Furthermore, the type of bill you receive will depend on how you pay for your electricity or gas. For example, your bill can be in the form of a demand for payment (i.e., a bill) or a statement of what you have already paid (by direct debit or pay-as-you-go).

In the UK, you will receive your bill quarterly (sometimes monthly) and will state the amount that is owed minus any payments already made. The bill will also show when the price is due and how the amount was calculated.

You can settle the bill in one payment or installments or set up a quarterly direct debit.

Those who pay by monthly direct debit and pay-as-you-go customers will receive a statement every 3, 6, or 12 months. This shows the current balance of the account and isn’t a payment request. Instead, it shows your latest payments and the amount of credit or debit your account is in.

Your account should normally be in credit as a direct debit pays for your gas and/or electricity upfront. Because you’ll use more energy in winter, expect a small debit in spring which will become a credit by the end of the summer.

Suppliers will often lower or raise your direct debit to compensate if you’ve overpaid or underpaid in the past, so it may not reflect how much energy you actually use.

If your statement shows a significant credit or debit, submit a meter reading and ask your supplier to reassess your direct debit – the sooner you do this, the better. You can ask for any excess credit to be refunded.

Paying electricity by Direct Debit

It’s the cheapest way of payment for electricity in the UK. It has low transaction and administrative costs. In Direct Debit, payments occur around the same date every month.

Your supplier determines how much you will pay based on your information about your electricity usage, your house, and the number of occupants living there.

The amount you pay doesn’t always reflect the consumption of a particular month because it changes based on the weather and economic factors. With Direct Debit, you will either have an underpayment or overpayment.

With an overpayment, credits build up on your account. You can ask your supplier to refund the surplus amount, or it can act as an advance payment for the months to come.

Alternatively, if you frequently underpay, you accumulate debt on your account. You will then have to raise your direct debit amount to pay the debt. It’s essential to present monthly meter readings to your electricity supplier to ensure your bill is accurate and to give you an estimate of how much you’re likely to pay each month.

Electricity suppliers usually offer discounts to customers who use this method to reward them for consistent payments.

Quarterly Direct Debit

This payment method is like Direct Debit, except it involves quarterly payments covering three months’ worth of electricity usage. Although the charges are higher, the overall cost equals monthly payments.

Electricity suppliers offer discounts for those who pay quarterly, but it’s not as much as for those who use monthly direct deposits.

Payment on receipt of the bill

This is where consumers wait for their suppliers to send the electricity bills, which happens once every three months, and then they can make payments. It reflects the amount of electricity consumed during the preceding three months.

This is a convenient method for roommates since they can split the bill equally. You make payment upon receipt of electricity bills:

• through the phone using the supplier’s app
• by cash or cheque deposit at a bank
• online

With this method, you always know how much you’re paying. In case you may think you are being overcharged, you can air your sentiments to your supplier. There’s a limit of 14 days to pay your electricity bill using this method, beyond which you will pay a fee. 

Unfortunately, electricity suppliers don’t give discounts to customers who opt to pay upon receipt of bills.

Prepayment meter

With a prepayment meter, you pay your electricity before consumption using a top-up key or a token. This helps when you’re on a budget since you pay whenever you are able to, irrespective of the amount.

Although most homeowners avoid prepaid tokens because they are the most expensive option, landlords prefer them since it prevents tenants from accumulating debts.

Payment cards

With a payment card, you top up at the Post Office or at a PayPoint shop since top-ups aren’t yet available online.

With the electricity bill being one of the largest utility bills, when you move into a new house:

• Request your landlord for details of the electricity supplier. If they don’t know, use the contacts here to find out.
• Send the current meter readings to your supplier to avoid paying for the previous occupants’ bill.
• Find a deal suitable for your home using comparison websites.
• List everyone’s names on the bill in case of liability.

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