Energy prices in the UK

Why do energy prices vary by region?

How much you pay for energy depends on lots of factors. Where you live in the UK is one of them.

Regional variations in energy prices are partly due to costs associated with sending electricity down wires. Areas with fewer households to share the delivery cost could end up paying more, and vice versa.

The same goes for gas – but the price implications aren’t as great.

This delivery cost is set by the UK’s regional distributors, rather than domestic energy suppliers. But domestic suppliers will include the fee in the overall cost of your bill.

This is another reason for differences in price. Domestic suppliers target different regions depending on how much energy they buy from generators and sell there, and how important and profitable that region is. It’s a case of supply and demand.

What costs make up my energy bill?

Region is just one factor in your energy bill. Wholesale, network, operating and policy costs play a part too. As do the type of contract, the payment method you choose and price caps.

Ofgem has broken down a typical dual fuel bill to give you an idea of the different costs associated with energy supply. In order, they are:

• Wholesale costs (34.63%) – the cost to suppliers when buying gas and electricity
• Network costs (25.35%) – the cost to distribute energy from the power station to your home
• Operating costs (18.62%)– these relate to the supplier’s general running costs
• Environment/social obligation costs (15.33%) – the government requires all suppliers to contribute to green initiatives
• VAT (4.76%) – the standard charge on all goods and services
• Other direct costs (2.24%) – this includes things like smart meter programmes and sales from intermediaries

Price caps

While there may be regional variations in energy prices, there is a maximum amount that suppliers can charge for gas and electricity.

This is because of energy price caps, which are based on Ofgem estimates of how much suppliers need to spend to supply your home with energy.

You’re protected by price caps if you’re on a standard variable tariff (SVT), prepayment meter or get the government’s Warm Home Discount. You’re not protected if you’re on a fixed-rate deal, though these tariffs tend to be the most affordable.

Either way, shop around and compare tariffs to find the best deal for you. There are also things you can do at home to cut your energy bills – read our guide.

National delivery cost

There have been talks about introducing a national delivery charge for energy. This would smooth out regional variations.

There would be winners and losers in delivering such a system, according to Ofgem. Some regions would see their bills reduce, while energy costs would increase for others.

When the topic was discussed in 2016, St Ives MP Derek Thomas said Cornwall generates more renewable energy than other counties. He told BBC Radio 4’s Money Box that “there’s no reason we should be paying more for [energy].”

Ofgem pointed out at the time that there was support in place for areas facing difficulties with energy supply.

So how did suppliers feel about the national charge?

Tim Field, of the Energy Networks Association, told Money Box that cost-reflective charging “helps to ensure that the customer pays a fair price for the cost of the infrastructure they need for the electricity and gas to get to the homes and businesses in their area.”

There are currently no plans to roll out a national delivery cost.