Energy bills are made up of lots of different items such as the cost of getting energy to your home.
Figures from NERA Economic Consulting show the breakdown of an average gas or electricity bill as:
45% is the actual cost of energy
40% is spent on transport, distribution and running costs
The rest of the bill is divided into environmental, metering, profit and VAT costs. These costs are explained below.
The costs of an electricity bill are divided as follows:
The costs of a gas bill are divided as follows:
The electricity and gas transmission and distribution networks bring energy to customers' homes. This is the only part of the bill which is still directly controlled by the industry regulator.
Since privatisation, these costs have fallen as energy companies have become more efficient.
New demands on energy networks like the need for more renewable energy and the introduction of smart grids could mean that these costs could rise. Any increase in this charge has to be approved by the industry regulator.
The environmental charges added to energy bills pay for schemes such as the Carbon Emissions Reduction Target (CERT). These schemes aim to increase the energy efficiency of households and to tackle fuel poverty.
Also included in these charges are:
The Renewables Obligation, which aims to increase investment in renewable forms of energy generation
The EU Emissions Trading Scheme, which aims to cut the amount of carbon emissions made by electricity generators
So that Britain meets its climate change targets, the energy industry may take on new obligations which could add more environmental charges to the energy bill.
Value-added tax is charged at 5 per cent on energy bills, which is lower than in most other EU countries.
Customers already pay for their existing energy meters through their energy bills. This will continue when the plan to add smart meters to all homes begins. Find out more about smart meters.