Why do Gas Prices vary by Region and by How Much?

Introduction

Not many people know that how high their energy bills are is affected by what area of the UK they live in. When you compare energy deals, however, you might notice that they have different rates for different parts of the country. They might be lower, or higher depending on where you live. There are several reasons for it and from this guide you can find out what they are.

Factors affecting energy prices

The fact that the same amount of energy might be more expensive in some areas than others is referred to as the postcode lottery. The major factors that determine that include:

1. How much the supplier sells to customers in the region – if there are not many people living in the area, the prices will be higher as the demand is lower.
2. How much the company buys from energy generators – energy companies buy energy from generators based on estimated demand. If in reality they have to supply more, the prices are likely to go up.
3. What charges the supplier has to pay to local energy distributors – energy suppliers pay a fee to local energy distributors for their help in distributing energy to homes and businesses.
4. Average energy consumption in the area – in regions where it tends to be colder people use more energy. That’s why the prices are usually higher in the North of the UK.

Even though energy suppliers can modify their rates and make them lower to attract more customers, the charges imposed on energy providers by local distribution networks are likely to stay higher in some parts of the country. These charges are reflected by the standing charge of each energy tariff.

Each energy supplier will have different prices for buying the same amount of gas and electricity from the same local distribution network. The prices are regulated by competition. If there are many suppliers that try to attract customers, the prices will be lower.

Additional factors affecting energy prices

In the table below you can find an overview of some of the other things that can cause energy prices to be higher or lower in different areas of the UK.

How charges of the local distribution network are imposed on suppliers

Local energy distributors usually have a monopoly on distributing electricity from the grid to homes and businesses in a certain area, so they can set high prices. Here you can find an overview of how they come up with their rates.

• Prices differ depending on location and usage of the site
• New rates are published every year
• For standard sites prices are set by the networks
• For non-standard sites prices are agreed between the shipper and the network

How is electricity supplied in the UK?

Electricity in the UK is supplied through Distribution Network Operators (DNOs) and energy suppliers that work together. Energy suppliers like the ‘Big Six’ use these networks to provide energy to customers. For the purposes of supplying energy, the UK is divided into 14 regions.

There are 6 Distribution Network Operators (DNOs) that are responsible for the electricity distribution across the UK.

From the table below you can find out who supplies your electricity.

How is gas supplied in the UK?

Gas is supplied in a similar way to electricity, but through Gas Distribution Networks (GDNs). There are 8 of them in the UK. They are natural monopolies so they are allowed to determine their prices as they want, as long as they’re fair. You can find out what GDNs are in the UK from the picture below.

Which regions of the UK are the cheapest?

According to Ofgem’s 2019 report, electricity prices tend to be the highest in North Scotland and London. The second place belongs to South Wales and the South of England, and the lowest electricity rates can be found in the North East and North West. The gap between the highest and the lowest electricity bills can be as high as £65.

According to what Ofgem reported earlier this year electricity prices in the UK rank around average compared to other countries in Europe. The UK’s gas prices rank below average.

How are prices regulated?

Ofgem is an official government department for both gas and electricity supplies. Its task is to regulate and control energy companies in the UK. It is concerned with the interests of energy consumers and it ensures that their rights are protected. Ofgem controls electricity and gas prices to make sure that clients are getting fair deals. Thanks to Ofgem even suppliers that have a monopoly in a certain region cannot set their prices too high. Ofgem also promotes competition and encourages energy providers to offer a big selection of energy deals.

If there have been many complaints about a certain provider, Ofgem will start an investigation. If it asserts that the supplier has been overcharging the customers, you will be able to claim your money back.

Breakdown of a dual fuel energy bill

If you get your gas and your electricity from the same supplier your bill is most likely to consist of a number of costs. That includes:

• Wholesale costs (38%) that refer to what energy suppliers pay when they purchase gas and electricity.
• Network costs (26%) that represent the cost of delivering energy from power stations to customers.
• Operating costs (17%) for the company’s services.
• Environmental costs (8%) that all energy suppliers are legally required to pay.
• VAT (20% or 5%), how much you will pay depends on how much energy you use.
• Supplier pre-tax margin (5%) that represents the difference between how much energy customers use and how much it costs the company to deliver energy.
• other costs – 1%

The biggest part of the bill represents, therefore, wholesale costs that refer to what energy suppliers pay when they purchase gas and electricity. These costs vary depending on factors like the costs of gas and oil at the time of them buying it,and  transport costs.

What to do if you want to pay less for energy bills

Unfortunately if your region belongs to the most expensive areas in terms of energy prices, you can’t change that. There are, however, a few things you can do to save money on energy bills.

Firstly, you should always make sure that you choose the cheapest deal from the available energy contracts. You should always compare prices offered by several providers and pick the one that has the most competitive prices. That will allow you to pay less per kWh of the energy used. Comparing different energy plans and making a switch is very easy, so if you think you’re paying too much for your energy bills you should make the switch.

Secondly, you should try to change your habits to manage your energy consumption more efficiently. Many people have the habit of leaving the lights on when they leave the room or having the heating on in rooms they don’t use. Once you start paying attention to these things and only use electricity and gas that you actually need, you will notice that your energy bills will be lower.

How much would you save with Niccolo Gas

Many people only look at tariffs offered by the ‘Big Six’ when choosing their energy provider. In reality, however, there are many other, smaller suppliers that often offer more competitive rates. From the table below you can find out what are the cheapest business tariffs offered by the ‘Big Six’ and compare them to the price that Niccolo Gas gives you.

Niccolo’s contracts do not include a standing charge, and prices per unit range from 3.2p to 3.37p. That is much cheaper than what some of the most common energy providers offer. Contract term with Niccolo Gas is one year.