Lauren Bravo asks…
How much does it cost to get energy to my home?
Travelling thousands of miles, from the North Sea and power stations to your gas stove and sockets, gas and electricity have been on a truly epic journey. But while we might feel informed about the sources of our energy and its eventual uses (hello, dinner), the part in between remains a mystery to most of us.
I asked Andy Manning, Head of Transmission and Distribution at Centrica, to help join up the dots.
So Andy, how does gas and electricity travel to our homes? Let’s imagine we’re on a bus and you have to tell me before I get off in three stops.
I’ll try my best! Electricity is generated in power stations, wind farms and other generators, and from there delivered using the national transmission network – that’s kind of like the motorway, transporting at high voltage over long distances – and the local distribution networks that connect to that big national network. They’re like the A roads, delivering the electricity to people’s homes and businesses.
And gas is the same… but with pipes?
That’s right – around 170,000 miles of pipes. A lot of the gas comes from the North Sea; some is liquified (at temperatures of -160 C) so that it can be transported in tankers from places like Qatar. Either way, it generally arrives in the UK at the coast, where it’s treated and even has the smell added to it for safety, ready for our homes. The gas is then fed into the national pipe system and transported around the country via local distribution networks.
Of course, the gas smell! Like everyone, I learned that fact from Ross on Friends. So who owns all those pipes and pylons?
National Grid owns the big gas transmission system, and the electricity transmission system in England and Wales, while in Scotland electricity transmission is split between Scottish Power and SSE. Those two also own electricity distribution networks, while the rest of the local electricity distribution is split between other companies such as Western Power Distribution and Electricity North West. And there are eight local distribution networks for gas too, including National Grid.
So does that make British Gas a bit like a customer hiring a van to move its energy around?
Not quite. As networks like National Grid are monopolies, their prices are set by the independent industry regulator, Ofgem, which does an assessment every eight years to make sure they’re good value for customers and fair for all suppliers. In between, the prices generally rise with inflation.
So if British Gas can’t negotiate with the networks, what can it do to ensure it’s getting a good deal?
Well, in 2015 we challenged the electricity distribution fee and ended up getting the amount reduced by £105 million. Which is good. We believe it’s important to do what we can to help the regulators set the right fee, because it’s a big portion of the bill. Of the average £1,147 annual bill, £322 goes on getting energy to our homes. Around £50 of that pays for metering, and the rest is transportation and delivery costs – £273, which is 24% of your total bill. That’s a sizeable chunk.
And what exactly does that chunk cover?
About a third is spent building or replacing the physical assets in the ground; about a third covers operating costs which include things like staff salaries, pensions, vehicles, maintenance, the big fleets of people needed to keep things running; and about a fifth goes back to their shareholders, who invest in the network companies, and the rest is tax. We also pay National Grid for its other role, operating the whole system from the control centre. They balance the energy supply and demand on a second-by-second basis, which is unpredictable – if it suddenly gets cold outside, that takes a lot more balancing.
It always comes back to weather, doesn’t it?
It’s true! At British Gas everyone’s slightly obsessed with the weather – so much of our business comes down to if it’s cold or not. I used to have a manager who was always interested to see whether I’d been out for lunch wearing a coat!
Beyond warm jackets, are there any interesting initiatives that British Gas is investing in for the future?
One project we’ve been involved in is the Customer-Led Network Revolution. We worked with Northern Powergrid and other partners to encourage customers to change the way they use energy, offering lower tariffs if they used electricity outside of peak times. Because what drives up the cost of the network is those peaks – like 6pm on weekdays when everyone gets home and starts to cook dinner.
If electric vehicles are going to take over the roads in the next 10 years then we’ll need billions of pounds of investment in the UK’s electricity networks. But the question is, can customers play a role in reducing that amount by spreading out when they use energy? That’s where smart meters and time of use tariffs come in. These will help people to understand their consumption and use electricity differently, meaning peak times could become a thing of the past.
So knowledge really is power! And just in time, because we’ve arrived at my imaginary bus stop.
*Published July 2016, all facts and figures correct at the time of publishing