The best way to minimise your energy payments – and optimise your bills – is to find out a little more about electricity prices. The cost of electricity is influenced by a number of factors including supply and demand, network costs and environmental levies. The price you pay for electricity will also depend on your energy supplier and the tariff you’ve signed up to. The average household in the UK spends around £50 per month, or £600 per year, on electricity. For some, the cost of powering their home and appliances could be much higher.
Last update: April 2022
As you may have heard on the news, the UK energy market is currently under an immense amount of stress as a result of a global gas shortage driving up costs and putting several energy suppliers out of business. To learn more about this and stay updated on a daily basis you can read our page on the UK energy crisis.
Fixed rate tariffs are generally a lot cheaper than variable rates. So, if you’ve been moved onto a standard variable rate by your supplier, you could get better energy prices by renegotiating your deal. When looking for a supplier it is important to compare energy prices properly.
Here, we take a closer look at how electricity prices are calculated, what influences them and how you can optimise your energy bills.
What is the cheapest electricity tariff in the UK?
In general, the cheapest electricity tariffs available in the UK are fixed rate deals. Signing up to a 12 or 24-month contract allows you to take full advantage of your supplier’s best rates and ensures low electricity prices for the length of your contract.
The best way to find the cheapest electricity tariff in your area is to use an impartial price comparison service like our Switch Plan. Get in touch with a member of our team today to find out more.
0330 818 6225
What’s the average kWh price?
The average cost of a kWh of electricity in the UK is 16.6p. However, this can vary significantly depending on your region. The table below shows the average cost of a kWh of electricity in different parts of the UK:
|Area||Average variable unit price (p/kWh)|
|Merseyside & North Wales||16.6|
Fixed or variable electricity tariffs
In general, fixed rate tariffs are cheaper than variable rate deals. This is because fixed rate tariffs offer customers the chance to set the price they pay for their electricity for a period of time. This insulates customers from fluctuations in the wholesale cost of electricity.
Most fixed rate deals ask customers to commit for a period of 12, 24 or 36 months. Households that want to change suppliers or tariffs before their contract period expires will have to pay an exit fee. This exit fee can be anywhere from £5 to £50 per fuel.
If you choose a variable rate deal, the price you pay for your electricity will fluctuate according to changes in wholesale energy prices. If prices go down, your bill will also go down. However, if prices rise, you could be left paying more than you’d like for your electricity.
The cheapest fixed and variable electricity tariffs
As electricity prices vary depending on geographic location and usage, you’ll need to compare available deals to find the cheapest fixed and variable rate tariffs for your household. Call our Switch Plan to find out more and to see what’s available in your area.
0330 818 6225
What can I do if my energy supplier raises prices?
If you’re on a standard variable rate tariff, the amount you pay for your electricity can change from month to month. This means that you may well see the price you pay for your energy go up.
You may also notice an increase in your energy bills if you were on a fixed rate deal that’s now come to an end. When a fixed term expires, most energy companies automatically put their customers onto default standard variable rate tariffs. These are generally more expensive than fixed term options.
If your energy supplier has put its prices up, there are two main courses of action open to you. These are:
- Stay with your existing supplier and switch to a cheaper tariff
- Switch to a supplier that offers better value deals
In both cases, the first thing you should do is find out exactly how much your supplier will now be charging for a kWh of electricity. Once you have this information, you can start looking around for a better deal.
How to compare electricity prices?
It’s always a good idea to use an impartial comparison tool, like our Switch Plan, when comparing electricity prices. This allows you to look at a wide range of different deals to find the tariff that’s right for you.
When comparing energy prices, the most important things to look for are:
- Unit price per kWh
- Standing charge
- Fixed term period
- Exit fee
The unit price is the amount your energy company will charge you for every kWh of electricity you use. If you sign up to a fixed term contract, this price should remain the same for the duration of your deal. If you opt for a standard variable rate tariff, the unit price will change as wholesale electricity prices rise and fall. The lower the unit price of your tariff, the cheaper your electricity bills will be.
The standing charge is a fee that energy companies charge customers for connecting them to the grid. You’ll pay this charge every single day, whether you use any electricity or not. Finding a deal with a low standing charge will help to keep your electricity payments to a minimum.
During your fixed term period, the unit price of your electricity will stay the same. Most fixed periods last either 12 or 24 months, although longer deals are available from some suppliers.
Fixed rate tariffs are suitable for households that plan to stay at the same address for the duration of the contract. They can make budgeting easier and are a good option for customers who want to minimise their energy payments.
If you decide to leave your fixed term deal early, your energy supplier will charge an exit fee. Although not all energy companies apply exit fees in these cases, most do.
What are prices made of?
Electricity prices are made up of a lot of different elements including wholesale energy costs, taxes, environmental obligations and network costs. The table below shows the breakdown of the average UK electricity bill:
|Environmental and social obligation costs||22.92%|
|Supplier pre-tax margin||-2.07%|
|Other direct costs||1.48%|
Unit prices – average market unit price
The average unit price of electricity varies throughout the year. The table below shows the average unit prices of electricity in the UK compared to countries around the world in February 2021. Prices shown are in US dollars:
|Country||Average price in $cents/kWh|
Standing charge – average standing charge
The standing charge is a fee that’s applied by almost every energy company in the UK. It covers the cost of connecting customers to the grid and getting the electricity to their homes.
Standing charges can vary considerably depending on your location, supplier and tariff. A standing charge for an electricity tariff could be anywhere from 5p to 60p per day. However, in reality, most customers will pay between 20p and 30p per day.
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How are electricity prices calculated?
Energy suppliers look at a lot of different factors when calculating electricity prices. These include:
- The availability of electricity
- The wholesale cost of electricity
- Demand for electricity
- Transportation costs
- Infrastructure maintenance costs
One of the main factors that impacts energy prices in the UK is the cost of wholesale electricity. If electricity is readily available and demand is relatively low, wholesale costs will fall. However, if energy generation struggles to meet demand, prices go up and customers pay more for the electricity they consume.
Currently, just under half of the electricity we use is generated using fossil fuels, most notably, natural gas. The rest comes from a combination of nuclear and renewable sources.
If the cost of natural gas goes up, this will cause a corresponding rise in the cost of electricity. Similarly, if solar power generation is reduced by bad weather, this will limit the amount of electricity available and cause prices to increase.
The table below shows the average fuel mix of electricity used in the UK:
Who sets electricity prices?
In the UK, there isn’t one organisation or body that sets the price of electricity. However, Ofgem, the regulatory body for the energy industry, does have the power to set a price cap. This cap limits the amount that suppliers can charge for a kWh of electricity and is designed to ensure customers aren’t overcharged for their energy supply.
Ofgem calculates its price cap by looking at the cost of wholesale electricity, the cost of getting electricity to our homes and other associated expenses that suppliers incur. The price cap is reviewed twice a year, in February and August. Any changes that Ofgem makes come into forces in April and October respectively.
While the Ofgem price cap limits the amount that suppliers can charge for a unit of energy, it’s important to note that it doesn’t limit the overall cost of your energy bill. This will still be calculated according to your usage.
2020 electricity price changes? how much have electricity prices increased?
In general, electricity prices are on the up. Even when inflation is taken into account, households are paying more now for their electricity than they did 10 or 20 years ago. In fact, according to some estimates, prices have risen by an incredible 193% over the past two decades.
However, in 2020, electricity prices actually went down. This is because energy regulator Ofgem lowered the energy price cap. The cap was lowered largely due to the Covid-19 pandemic which has seen demand for energy plummet.
As a result of this significant dip in demand, there is more electricity available and so wholesale prices have come down. The price cap was reduced by £84 to £1,042.
In February 2021, Ofgem announced that it would be raising its energy price cap. These changes will come into force in April 2021. In response to the new price cap, a number of major energy companies, including British Gas, EDF Energy and E.On, have announced they will be putting prices up. On average, it’s expected that a dual fuel tariff will increase by £96 in 2021.
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Who has the best gas and electricity prices?
Gas and electricity prices tend to vary throughout the year. The deals you’re offered will also depend on your usage, your location and the fixed term period you sign up for. This can make it difficult to say for certain which energy supplier has the cheapest tariffs at any particular time.
However, there are some gas and electricity suppliers that offer consistently low prices. These are:
- Outfox the Market for variable rate tariffs
- Avro for fixed rate tariffs
- Scottish Power – the cheapest of the big six
Use our Switch Plan to find the best gas and electricity tariff for your home. Get in touch today to find out more by calling 0330 818 6225.
Will electricity prices rise in 2021?
As the Ofgem price cap is currently set at a record low level, it’s likely that it will be raised at one of the 2021 price reviews. However, until the Covid-19 pandemic has eased, any increases are likely to be minimal.
If you’re on a fixed term tariff that comes to an end in 2021, you may well see your electricity prices go up. The best way to avoid paying over the odds for your energy is to sign up for another fixed rate deal as soon as possible. Check your account to find out when your contract comes to an end.
How will Brexit affect electricity prices?
At the end of 2020, the Brexit transition period came to an end and the true effects of Britain's exit from the EU began to be felt. When it comes to energy, it’s likely that Brexit will cause prices to rise. This is because UK energy suppliers import gas and electricity from the EU and Brexit will probably cause transportation costs to increase. Reduced EU investment in energy infrastructure is also likely to have an impact on UK energy prices.
How much have electricity prices increased?
Although electricity prices tend to fluctuate, in general they have been going up over the past few decades. It’s estimated that customers are now paying 193% more for their energy than they were 20 years ago.
In 2019, the average UK electricity bill was £679. That was a 6% increase on the average UK bill for 2018.
Updated on 24 Jan, 2022
Energy Specialist & Copywriter