Gas and electricity explained
Gas and electricity bills are one of our biggest household expenses, but few of us really understand exactly what we're paying for and how we can get more for our money. For that reason, we've compiled a short guide to gas and electricity that features our top tips to help you save money.
How is my energy usage calculated?
Units of gas and electricity are measured in kilowatt hours (kW/h). Your gas meter will either display your consumption in cubic metres (m3) or cubic feet (ft3) and your energy company will then convert your usage to kilowatt hours. Your electricity meter usually measures your consumption in terms of kilowatt hours.
Energy suppliers often use a two tier pricing structure, which means that you'll pay more for the first units of energy you use (tier 1) and then less for the rest (tier 2). Two tier pricing structures almost always exist where there is no standing charge.
What is a standing charge?
The standing charge is a fixed fee made by your energy supplier for each day you are connected to the gas and/or electricity network. It pays for maintaining your supply.
Not all energy plans include a standing charge however they may charge more per unit to compensate.
What is dual fuel?
'Dual fuel' simply means that your gas and electricity is provided by the same energy supplier. As discounts or reduced rates are available for dual fuel agreements, they normally work out cheaper than single fuel agreements with different suppliers.
What gas and electricity price plans are available?
Energy suppliers offer a range of price plans, also known as 'tariffs'. You'll generally be able to choose between:
Each supplier will have a standard price plan. This is what you’ll be given if you don't choose an alternative option. As standard price plans are variable, the price you pay per unit of electricity can fluctuate, meaning your bills could go up as well as down.
With a fixed price plan the price you pay per unit of energy is fixed for a set period, meaning that the unit price is guaranteed to stay the same - even if energy prices do go up. If energy prices go down, you won't benefit. Fixed price plans can provide peace of mind in a climate of rising energy prices however once the fixed period ends, your supplier will move you to their standard tariff unless you request otherwise. Penalty charges may apply if you try to exit a fixed price plan early.
With a capped price plan the price you pay for each unit of electricity is variable, but is also capped at a certain level, above which it cannot rise. The cap will apply for a set period, after which you will normally move to the supplier's standard tariff.
The main advantage of this type of price plan is that you have the security of knowing what your maximum price per unit of energy will be over a set time period, but can also benefit if energy prices go down.
- Economy 7 plans (electricity only)
With this price plan, electricity you use during the night (off-peak period) costs less. The off-peak period lasts for seven hours, hence the name; usually it starts at 1:30am during summer and 12:30am during winter. As a general rule, you'll need to be using around 20% of your energy consumption at night to make a saving on an economy 7 plan.
- Green plans (electricity only)
Green price plans claim to deliver environmental benefits such as sourcing energy from renewable sources or carbon offsetting.
With these tariffs you can sign up online or manage your account completely via the Internet. Usually online plans offer discounted rates although normally you'll need to commit to paying by Direct Debit to qualify.
Energy suppliers must provide social plans for 'vulnerable' customers, for example those on benefits. The price per unit of energy must be equal to the supplier's cheapest tariff. If your energy bills account for more than 10% of your income, then you may be eligible for a social plan.
In the next part of our guide we look at gas and electricity meters, bills and payment options.
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Reading your gas and electricity meters »
