Why energy rates differ regionally?

December 11th, 2019

You must know that the price of energy that you pay on this corner of the Great Britain may not match with the other side of it. Yes! Energy prices do vary and they vary regionally. If you are living in London then you might be paying higher than someone living in the East Midlands and same for other parts of the United Kingdom. The energy price difference can be as high as £92 between the highest energy price and the lowest energy price in the UK. This is quite a huge figure and often prompts one to think about the reasons for this difference.

For this, one must know what constitutes the energy price. So, what you pay in the bill is not just for the energy but there are several other factors which sum to make the price soar. According to energy regulator Ofgem, the energy bill can be bifurcated as follows:

  • 46% of the bill consists of the wholesale energy. This is the price the supplier has to pay to buy energy from various sources and generators.

  • 23% of the bill consists of the network or distribution cost. This is what your energy distributor charges for creating and maintaining networks to supply the energy.

  • 13% is charged as an operational cost by the supplier.

  • 8% is the environmental cost that suppliers pay to the government and it is often termed as the social cost.

  • The last 10% is the sum of Value Added Taxes and supplier’s profit.

Why the energy costs differ with regions?

It varies with the supplier: Energy costs vary with the suppliers. As suppliers purchase wholesale energy from various sources, they charge different prices as per the wholesale charges they paid for any particular region. If there is less number of people generating energy in a particular region then the prices are going to go up.

It varies with the population: Energy plans are cheaper for a densely populated area then they are in a region that is sparsely populated. This goes to the straight demand and supply rule. Where you find less demand, the wholesale prices would be high and so, if you live in a place that has less count of people then your energy prices tend to be more.

Distribution cost: As the distributors have to manage and maintain distribution channels for passing electricity, that charge gets added to the final bill. Depending upon the complexity of the distribution network and its maintenance cost, the charges may vary. If the region has a really complicated network and there is no other way out then the cost is passed to the consumer. So, a big chunk of your bill varies as per the energy distribution network.

Energy generating units: If there are less energy generators in a particular region then the energy cost would increase. This cannot be helped in any way as the supplier has to pay more, which would reflect in your final bill. Therefore, if your region has more sources of energy then your bill will be low and vice versa.

Taxes and overheads: Value Added Taxes and additional cost which varies as per the government rules and regulations would also result in different energy prices.

These are some of the factors which affect energy bills. Think over them and choose a supplier that charges low overheads. For more details and comparison between the best energy suppliers in your region, check our website freepricecompare.com or call us on 02034757476.

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