Energy Bills Explained

Energy bills explained

By Laura Rettie, Personal Finance Journalist. Last updated 1st February 2023.

Laura Rettie

Energy prices have been in the news a lot in the last few years, but do you truly understand how your energy bill is calculated and what factors impact the cost of your energy bills?

How do energy bills work?

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.

How is electricity measured?

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).

How do I read my electricity meter?

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:

  • Single rate digital meters: These meters will show five numbers in black or white; these numbers need to be read from left to right, the same way you’d read normally. There may be some red numbers following these numbers; which can ignore.
  • Two-rate digital meters: People who get electricity cheaper at certain times may have a meter with two readings; you’ll need to give both to your supplier. One, usually the top row, will show the “low” or “night” time reading, and the other will be “normal” or “day”. Just like with single rate meters, read the numbers from left to right and ignore any red numbers.
  • Two-rate single display meters: Some people on a dual rate will have a meter with only one display. These will typically either flash between the two different readings or have a button to press to switch between them.
  • Dial meters: Dial meters will have five or more dials, showing numbers 0-9. You only need to read the first five dials from left to right. If a dial is between two numbers, use the lower one. Ignore any red dials or dials after the first five.

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.

How is gas measured?

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).

How do I read my gas meter?

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;

  • Digital metric meters: If your gas supply is measured in cubic metres, you’ll likely have a digital metric meter; this will show five numbers, followed by a decimal point, and then more numbers (for example, 00623.333). You only need to give your supplier the five numbers before the decimal point. Read these from left to right, just as you would normally read words.
  • Digital imperial meters: If your gas supply is measured in cubic feet, you’re likely to have a digital imperial meter. These will show four black or white numbers, followed by two red numbers. Read these meters from left to right; you can ignore the red numbers.
  • Dial meters: You might have a dial gas meter; these have four or more dials, each pointing to numbers between 0 and 9. Read the first four dials from left to right; you can ignore larger or red dials. If a dial is between two numbers, use the lower one.

If you’re still stuck reading your gas meter, you can contact your supplier, and they’ll be able to help you.

Paying your energy bill

Paying by direct debit

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 meter

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.

Paying on receipt of your bill

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.

Do energy bills include gas and electricity?

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.

How do I read my energy bill?

Energy bills from different providers may look slightly different. Still, fundamentally, all energy bills should tell you:

  • Your name and address
  • The name and address of your energy supplier
  • Your customer reference or account number
  • The tariff you’re on - this includes how much you pay per unit of energy, and whether you pay a standing charge.
  • Your tariff comparison rate - this tells you how much you pay compared to a typical customer
  • Any other contract details
  • The serial numbers for your gas and electricity meters (also known as your Meter Point Administration Numbers, or MPAN)
  • A record of previous meter readings
  • How much gas and electricity you’ve used over the current billing period - this is typically either a month or a quarter (three months)
  • The bill date, details of the billing period and information about your last payment
  • How much your current bill is, with a breakdown of the charges

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.