By Laura Rettie, Personal Finance Journalist. Last updated 1st February 2023.
The cost of energy has soared in recent months, but do you truly understand how your energy bill is calculated, what’s included and what factors are impacting the cost of your energy bills?
In this guide we only talk about gas and electricity as a source of energy, because they remain the most popular in the UK.
Energy bills are calculated from how many units of gas and electricity you use.
Energy bills also include something called a standing charge; this is the cost of having a gas and electricity supply.
If you have a smart meter, the box will send your energy usage automatically to your energy provider, without you needing to do anything.
If you don’t have a smart meter, you’ll need to take regular meter readings and send them manually to your energy provider.
Between readings, your provider will predict your usage based on the difference between your most recent meter reading and your previous one.
Your electricity meter will display how many “units” of electricity you’ve used. Electricity is measured in kilowatt-hours (kWh), which means it measures how much electricity you’re using per hour.
Every electrical item in your home will tell you how much electricity it uses; let’s take an LED light bulb as an example. Most LED bulbs use around 9 watts; there are 1000 watts in a kilowatt, so this is equal to 0.009 kW.
To work out kWh, you simply multiply the kW used by the amount of time it’s left on (in hours).
Using our LED bulb example, let’s say you leave the light on for 6 hours; it will use 0.054 kWh of electricity (0.009kW 6h=0.054kWh). If you wanted to work out how much this would cost, you just need to multiply the kWh used by your electricity unit price. Let’s say you pay 34p per kWh; leaving the LED bulb on for 6 hours would cost around 2p (£0.34 0.054kWh = 0.018).
If you have a smart meter, it will send readings back to your energy company automatically. Most smart meters display how much you’ve spent on gas and electricity that day or month.
If you don’t have a smart meter, you’ll need to send meter readings to your energy provider.
There are a few different types of electricity meters; here’s a rundown of the most common ones:
If you’re still struggling with reading your electricity meter, contact your supplier, and they’ll be able to talk you through it; or visit the Citizen's Advice website, where they have step-by-step instructions on how to take a meter reading.
Your gas meter will measure the amount of gas you use in either cubic metres (m3) or cubic feet (ft3). However, your gas bill will be charged in kilowatt-hours (kWh).
Similarly to electric meters, if you have a smart meter, you don’t need to take meter readings. If you don’t have one, you’ll typically have one of three different gas meters;
If you’re still stuck reading your gas meter, you can contact your supplier, and they’ll be able to help you.
The most common option for paying energy bills is via direct debit. Typically monthly, but you can also choose a quarterly direct debit if it suits you better.
If you’ve got a smart meter, you’ll pay for the energy you’ve used. If you don’t, your energy provider will calculate your monthly direct debit; they’ll do this by estimating how much energy they think you’ll use over a year and divide it over 12 months.
These payments will build as a credit on your account, either until you provide a meter reading or when you receive a bill from your provider (typically every three months). If you’ve received a bill without giving a meter reading, it will be an estimated bill; this will update whenever you next send a meter reading.
After your direct debit has been taken, you may find yourself in credit or in debt. If you’re in credit, it means you’ve paid more through your direct debits than the energy you’ve used. You can either put this money towards future bills or request the money back.
If you’re in debt, it means that your direct debits haven’t covered the amount of energy you’ve used. If this is the case, you’ll need to pay the difference, and you may need to update your monthly payments.
Prepayment meters allow you to pay for the energy you use in advance. Some people prefer to use prepayment meters because it helps them to avoid overpaying or getting into debt.
If you’ve got into a significant amount of debt with your energy supplier, they may force you to have a prepayment meter installed.
You’ll use a key or card to top-up a prepayment meter, which you can usually do at a local convenience store or post office. There are also smart prepayment meters available, which allow you to top up online or via an app.
Whilst prepayment meters can be a handy way to stay in control of how much you’re spending on your energy bills, they could end up costing you more; most of the time, prepayment meters are more expensive per unit than other energy tariffs.
Some people choose to pay for their energy on receipt of their bill, though this is less common than it used to be. Paying on receipt of your bill simply means that your energy company will send you a bill for how much energy you’ve used, either monthly or quarterly and you pay them typically online or over the phone.
If you choose to pay your energy bill in this way, you might not be able to take advantage of the best tariffs, as these are often reserved for customers who pay by direct debit.
The majority of people whose homes use both gas and electricity will be on a dual fuel tariff, where both gas and electricity are paid for together. However, some people will get their gas and electricity from separate suppliers; typically, this works out more expensive, but not always.
If you have a prepayment meter, you may have to top up gas and electricity separately, as you’ll have separate meters for each; if you top up online, you may be able to do both simultaneously.
Some houses will use oil central heating or other alternatives and won’t be connected to the main gas grid.
Current government plans include introducing a ban on gas central heating in new homes from 2025, so gas use in the UK will likely phase out over time.
Energy bills from different providers may look slightly different. Still, fundamentally, all energy bills should tell you:
It’s important to look over the information on your energy bill carefully, be sure to challenge any errors you find, and make sure you keep your meter readings up to date to receive accurate bills and avoid under or overpaying.
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.