EnergyPersonal Finance

Calculating Your Energy Costs

Radiator thermostat

The ongoing energy crisis – with bills several times higher than should be expected – means we’re dedicating more space to sharing information about managing your energy costs.

But even during normal circumstances, knowing how to calculate your bills can help you avoid any nasty surprises. Here’s a quick rundown of how costs are calculated, plus a link to our favourite tools for finding out more.

The basics: standing charges and unit rates

Your energy bill is made up of two different costs. The standing charge is a fixed daily rate that you’ll pay regardless of how much gas or electricity you use. Effectively, it’s the cost associated with actually having an energy supply available to your property. There’s a separate standing charge for gas and electricity, and the amount you pay should be outlined in your contract with the supplier.

Of course, you’ll also need to pay for the energy that you consume. This price is given as the ‘unit rate’, and again should be clearly specified as part of your contract and also included on your bills.

Using these figures to calculate costs

Once you know your unit rate, it’s easy to calculate how much you are likely to spend based on your average energy consumption. A lot of people work out their future energy costs by looking at the amount they usually pay. But looking at how much energy you’ve actually consumed can give you a more accurate figure.

The first thing to do is to make sure you have up to date meter readings. Estimated readings are usually quite accurate, but for these purposes you need to know the amount of energy actually being used. If your readings are up to date, you can take a look at a recent bill to see how much energy you’re using on a monthly and annual basis. If not, submit a reading as soon as you can and wait for a new bill to be generated.

Once you can see how many units of energy your using, multiply this figure by the unit rate (or predicted future unit rate) to see how much you’re going to pay. Don’t forget to add the standing charge to get your final total.

Understanding the energy price cap

The price cap was introduced by Ofgem back in January 2019, originally as a way of limiting the unfair practice of offering substantially cheaper prices to newer customers. At the time, nobody had predicted the soaring rates we’re now seeing – but the cap has still proven useful as a buffer for price increases.

News stories about the price cap tend to quote the amount that average households can expect to pay as the cap limit, but that’s misleading. There is no overall cap on how much an individual household can be billed. Instead, the price cap applies to the standing charges and the unit rates, so the more you use the more you pay. The rates from October 2022 will be:

  • Gas: unit rate of 14.76p per kWh, standing charge of 28.49p per day
  • Electricity: unit rate of 51.89p per kWh, standing charge of 46.36p per day.

You can use these figures and the formula outlined above to predict your own future bills. Remember to factor in the upcoming discount of roughly £60 per month from October 2022 – March 2023, part of the Government’s overall support package.

Going through these numbers yourself is a really good way to get a better understand of what you’re paying and why. However, if you struggle with the calculations, there are also online calculators available to help you figure out your future energy costs. Even with an online calculator, you’ll get more accurate results if you have your bill to hand and can input precise info about how much energy you typically use.

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