Electricity Bill – Who you pay and what you pay for? – S01E01 – @MyUtilityGenius

Good afternoon and welcome to MyUtilityGenius
Whiteboard Fridays. My name is Guy Thompson, I am Product director, we thought the best
way to start our Whiteboard Friday would be to provide you with some context and understanding
of the industry you are getting involved in when you switch your gas and electricity and
when you try to deal with the energy market. We are going to start with the electricity,
hence "Part 1 Electricity" and we will start with simply the infrastructure of how it works
because most people don't understand that… So we start with your house here, this is
you, this is the generator. There are lots of different types of generation: capacity,
coal, nuclear, gas… The key thing about this is that they are generating through turbines,
it comes up to the National Grid.

National Grid is a spine of transmission cables that
run across the country, moving the electricity at around 400,000 volts. This moves along
the country, comes down to the local DNO which is the Distribution Network Operator who is
the localised person. They set this down using transformers and substations. Ultimately,
it comes out of your plug at 220 volts. So this is effectively the journey the electricity
takes to get to your door. So you have: generators, transmission company which is the National
Grid and you have these guys who are the DNOs, the Distribution Network Operators.

You don't know any of these people, because
you don't pay any of them… Where does the money go? Well, that's where the Big 6 and
the other energy suppliers step into the frame. This is where your money is going. You are
paying out on a monthly basis, Direct Debit, however it may be: you are paying out one
of the Big 6. What they are doing: they are disbursing that money to all the people involved.
They send it here, to the generators where they are buying on the wholesale market. Every
time you hear about the wholesale market that everyone blames for anything, well it is this
bit here. Some more of your money goes to the National Grid and some of it goes to the
DNO. These 2 here, are dealt with by OFGEM. So OFGEM is regulating the cost here. So this
cost is regulated, this is the trade market…

You are paying these guys and they are paying
somebody that everybody loves, the HMRC. They are paying things like Feed-in Tariffs, Renewable
Obligations. These are effectively the subsidies areas that you are paying. The Big 6 are some
of the biggest collectors of taxes in the UK. So when you get a bill, it is sent by these
guys but these guys are nothing more than very large billing engines with 5 million
or more customers, they have very strong credit facilities because they are buying electricity
for you and you are not only paying them a month or 3 months after you have used it.
They also have very sophisticated IT systems. But in a nutshell, out of all the money that
is disbursed here, the average annual energy bill, which is £1,300, the suppliers are
making between £40-£100 profit. That is effectively what you pay for in your
electricity bill. Next we ll have a look at part 2, gas…

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