Why are Energy Costs so different in the UK?

Did you know that your energy costs depend on which part of the UK you live in? It seems strange, but it is not so. Most energy plans have different rates for different areas. In Kent, the cost of a single-storey electric unit averages £ 14.06. As you go up, you spend a little more in London (£ 14.39), In Cardiff £ 15.25 up to the onerous £ 16.55 in Belfast.

Sometimes referred to as the “postcode lottery”, these differences mainly depends on three factors, closely related to the area of residence: how much the energy company sells (in your area), how much it buys from generators (in your area) and the charges imposed by the local distribution network. The most expensive areas are Merseyside and the South of Wales; Instead, the North of Scotland and East Midlands have the lowest energy prices on average. Maybe there is little to do on your postal code, but to have more control over the rates you pay per kwh, you can always check the cheapest plan available by performing an energy comparison. Unfortunately, the distribution networks that manage gas and electricity supplies are monopolies, so, unlike other energy markets, there is no free competition regime capable of forcing a reduction in costs. So if you can’t check the price range, you have the option to choose the cheapest rates available in your area. What many might wonder is why, if the energy is the same, some people pay more. Each energy supplier has its own reasons for setting prices as they are. Ofgem does not regulate prices, but only the market, to try to encourage suppliers to compete with each other and offer customers the best possible service. The energy market mechanism works if many reliable suppliers compete with each other; this, in theory, will ensure that prices will be kept low to retain and attract customers.

Electricity in the UK

In the UK, electricity is supplied to end users through distribution network operators (DNO) and energy suppliers; Uk is geographically divided into 14 licensed regions, where DNOs serve each. Downstream, energy suppliers (British Gas, SSE, npower, etc.), draw electricity from these distribution networks to serve customers. Each network will set the desired prices for each region; specific Ofgem rules however tend to prevent DNOs from monopolistic abuse, charging too much for suppliers, and consequently consumers.

Gas in the UK

Gas is supplied by energy companies through a network of 8 local distributors in the UK; as for electrical DNOs, local distribution networks in each of the eight regions will still have different costs for suppliers, which means that customers with the same energy agreement could obtain different prices based on their postal code.

How are energy prices formed in my area?

In general, if purchased in bulk, the prices of the products normally drop, and so it also works for energy. If they have customers to sell to, suppliers will be able to spend more on wholesale markets. Having said that, we know that some regions use more gas and electricity than others, but unfortunately this does not always affect prices, making them lower. This exception is clear if we consider the case of London, which, despite having a large population (with higher energy consumption), pays a higher electricity price than in northern Scotland.

In summary, some regions manage to obtain a cheaper energy supply than others, because they have a more abundant supply of fossil fuels or renewable energy. Other regions may have many customers but not enough low-cost power generation solutions, so the offer will be more expensive when you get home.

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