Racking Up Profits: Our Broken Energy System

Household energy suppliers could rack up profits of £1.74 billion over the next 12 months from all of our energy bills. That’s the findings of a new report from the Warm This Winter coalition and Future Energy Associates – Tariff Watch.

A breakdown of the different DNO (Distribution Network Operator) regions.

Electricity is distributed at a local level by distribution network operators (DNOs). Gas is distributed across eight different regional areas, but is accounted for by Ofgem across these same DNO areas. There are 14 geographical areas run by different DNOs which are known as DNO regions. Differences in the way power needs to be distributed within these regions, for example because of the length of connections to properties, as well as differences in the way DNOs operate, leads to differences in costs passed onto suppliers. In addition, electrical losses vary by region because of the makeup of the network, meaning more power has to be bought by the supplier for the same amount of energy end-use.

The price of a standard energy bill consists of two components: the standing charge and the unit rate. The standing cost is designed to represent the daily cost to connect to the electricity or gas grid, and the unit rate is the cost per unit of electricity or gas consumed. The price cap sets limits on both the standing and unit charge, which can vary by region, payment type, and is different between electricity and gas.

Regional Inequality is perpetuated by our energy system. The report found that Manweb is the most expensive region for electricity by far, costing £1,112 per year, whereas the cheapest region is East Midlands, which costs £1,028 annually. This range of £84 is 8% of the average annual electricity cost across all GB tariffs of £1,059. Manweb’s electricity costs are significantly higher than the next most expensive electricity region, Scottish Hydro. High costs of electricity to households in the North of Scotland, Merseyside, North Wales, and the South-West of England are driven by high electricity distribution charges.

Warm This Winter state: “Britain’s energy system is broken. Without fundamental overhaul of the energy grid and energy tariffs, households will continue to lose out while suppliers will profit.”

In a survey the charity Independent Age found that in Scotland, over half (54%) of over 65s on a low income are worried about how they will afford the cost of heating their home. The Orkney News will publish a future article on Pensioner Poverty in Scotland.

a house with the lights on in the snow
Image credit: Fiona Hunter

Fiona Grahame

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