How is My Electricity Bill Calculated?

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Summary: The better you know how your electricity bill is calculated, the better placed you are to see whether or not you’re overpaying, and how much of a better deal you can get elsewhere. So, how is your electricity bill calculated? And what information from your bill could help you to save money on energy in the future?


More than ever, our team of experts remain on deck to help you make savings on your energy. We understand how deeply the lives of many are affected by these trying times and we want to support you the best we can. More on your energy supply during COVID-19 in our article.

How is My Electricity Bill Calculated?

When your electricity bill lands on your doorstep (or, more likely, your email inbox), you’re probably not feeling too inclined to scrutinise it. In fact, your first instinct may be to bury your head in the sand and ignore your electric bill. Bills are unpleasant. And we all have a deep-rooted desire to protect ourselves from unpleasant things. But as unpleasant and scary as it may be, that bill contains useful information that could inform your future savings.

We Brits are spending over £800 million more on our energy than we should be. Knowing how your energy bill is calculated puts you in the driver’s seat, and helps to prevent you from overpaying in the future.

So take a deep breath. We’re about to take a close look at your energy bill. But don’t worry, the better you know it, the less scary it will seem.

What makes up your electricity bill?

Your gas bill usually consists of two kinds of charges. However, depending on your tariff, you may pay only one. When you look at your bill, you’ll see a lot of information, including:

  • Your last meter reading (if you have not submitted one, this will be estimated).
  • The amount of electricity or gas you’ve used in the month / year
  • Your energy tariff name
  • Your unique gas and electricity meter numbers
  • VAT charges
  • Your electricity unit costs in kWh
  • Your daily standing charges

Let’s take a closer look at these charges and what they mean.

Unit costs

These are the costs for each unit of electricity your household consumes. This is presented in kilowatt hours of kWh. In most cases, this is the wholesale cost of the energy (what your supplier paid for the energy) plus a very small markup. However, some energy companies (such as Bulb) do not make any profit at all on the energy they supply at all.

Standing charges

This is a small daily charge that is added to your bill. This is usually somewhere between 20p and 30p per day. This charge covers all the administrative costs that come with running an energy company, as well as participating in government schemes to protect the vulnerable (like the Warm Home Discount) and investing in renewable energy. This is also where energy companies make most (or even all) of their profit. However, profit margins are notoriously razor-thin in the energy sector.

There are some suppliers that offer tariffs with no standing charges attached. However, these will inevitably come with higher unit rates. These could end up more expensive, depending on our usage. They are best suited to properties that are vacant for much of the year (e.g. holiday homes and short-term rentals).

Daytime and nighttime units

You may find that your unit costs are divided into daytime and nighttime units. This means that you have a dual rate meter such as an Economy 7 or Economy 10 meter. This means that you get cheaper energy during off-peak hours. Economy 7 meters have 7 off-peak hours, Economy 10 meters have (yes, you guessed it) 10.

Off-peak hours vary, depending on where in the country you live. Economy 7 off-peak hours are usually between 11:30pm and 12:30am and 6:30-7:30am. Economy 10 hours are a little more complicated, but there are usually 3 off-peak hours in the afternoon (e.g. 1pm-4pm), 2 in the evening (e.g. 7pm-9pm) and 5 overnight (e.g. midnight-5am).

What does in credit mean on my electricity bill?

If you pay your electricity bill by Direct Debit (the cheapest way to pay), you may find that your account is in credit. This means that the amount you’ve been paying more than covers the cost of the energy you’re using and you have a little left over.

What happens to my credit?

You may want to leave your credit in your account. Some do this to cover their increased energy usage in the colder winter months when households typically use more energy. However, you can contact your supplier and as them to refund your credit back into your bank account. Different suppliers have different rules regarding this, although British Gas, Npower and Scottish Power (3 of the “Big 6” energy suppliers) transfer credit back into your bank automatically.

What does in debit mean on my electricity bill?

If your account is in debit, this means just the opposite. It means that the amount you pay by Direct Debit is not enough to cover the cost of the energy you use. If you are consistently in Debit, your energy supplier can increase the amount you pay by Direct Debit to prevent your account from falling into arrears. However, they cannot do this without giving you at least 10 days’ notice first.

How is the total calculated?

Now you know the components of your electricity bill. But how is it all put together?

First of all, your usage for the billing period is calculated in kWh. If you have provided a meter reading, this will be used. If not, an estimate will be used. This is then multiplied by the unit cost per kWh. Your daily standing charge is then added for each day of the billing period.

Estimated usage, and why you need to avoid it

If you don’t provide monthly meter readings, your supplier will apply an estimated usage to your bill. This isn’t necessarily a bad thing, as long as the estimated usage reflects your actual usage. And your energy supplier will prompt you for a meter reading at least once every 3 months to ensure that their estimates are accurate.

But if their estimates exceed your usage, you could spend months overspending on your energy. Estimates are based on Ofgem’s historic data for properties like yours. This may or may not be an accurate representation of your usage.

To be on the safe side, it’s recommended that you either:

  • Send monthly meter readings to your supplier on the same date
  • Install a smart meter

How do I calculate my electricity bill?

How smart meters can help

A smart meter transmits your usage data to your supplier automatically. So you’re only ever charged for the energy you use, and you never have to take another meter reading again. What’s more, smart meters make it a lot easier to see how much energy you’re using and track the effects of energy saving measures around the home in real time.

The government is keen to make smart meters available to all domestic and business energy consumers by 2025, but since it’s completely free to get a smart meter, there’s every reason to get ahead of the curve.

If you want to make sure that you’re always billed accurately, talk to your supplier about getting a smart meter installed. It’s also worth checking that they are rolling out second generation or SMETS2 smart meters. These will continue to transmit your usage, even if you switch suppliers. However, previous generations would stop transmitting data to suppliers, as they used a different network.

Let us help you find the perfect energy deal for your needs

Now you know how your electricity bill is calculated, you have everything you need to start saving money on your energy. As well as taking steps to reduce your energy usage, you can find a supplier that has lower unit rates and standing charges. And no matter what plan you’re currently on, there’s an excellent chance you can find one. In fact, the average household can save over £300 per on their energy by switching.

Don’t have time to trawl the market for the best energy deals? Don’t worry, we can do it for you! We’ll even manage your switch from end-to-end. So you can enjoy cheaper electricity quickly, and 100% hassle-free.

Want to know more?

Call us today on 0330 054 0017.

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Written by Casper

Updated on 24 Feb, 2021