How Is The Cost Of Electricity Decided?

Though every homeowner has to pay electricity bills of some sort

, most people won't give electricity and its presence a second thought from day-to-day. This is understandable as unless you're caught during a power cut, or have a fuse blow in your home, there is very little reason to consider electricity. However, from a practical point of view, knowing how much you pay for your electricity each month or quarter makes good common sense, as you of course could be paying far too much compared to other suppliers. It's also good to know exactly what it is you're paying for, and how the price of electricity is determined.

Commonly referred to as the grid', electricity is distributed throughout the UK through a network of established electricity lines which transfer electricity from power stations to localised substations, often via the tall pylons that dot the country. From these, smaller power lines distribute the current in villages, town and cities, and your electricity is measured on the point of entry into your home. The most significant variable which determines the cost of electricity is the cost of fuel needed by power stations; if fuel is widely available, then the cost will go down, but if fuel is scarce then the cost of purchasing it will be passed onto the customer. Fuel supply and demand fluctuates hugely from week to week, and unfortunately these fluctuations aren't in any way consistent with the demand for more electricity from domestic users. For example, most homes use more electricity in the winter months for heating, lighting and generally spending more time indoors, however the increased bad weather means that the power stations will endure increased costs transporting the extra fuel needed, so the price will rise as a result. This is why power plants tend to work at either "base-load" or "base-load peaking load" capacities.

So, as expected, your electricity price is largely determined by how much you need it, but that isn't all. Most electricity bills are calculated by multiplying the number of kilowatts used by the current price per kilowatt but most electricity providers, or vendors (the third party which essentially buys and sells electricity to households and businesses) will use an estimate initially, then either lower it or increase it several months later. This is often the fairest way of calculating your usage, as no one can predict how much electricity a household can consume.

Therefore, your electricity prices are estimated on a quarterly schedule, and your bill is split into two tiers. The first being for what they estimated you would use, and the second being for any surplus amount of electricity you used if it was more than they thought you would.

How Is The Cost Of Electricity Decided?

By: Paul Buchanan

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