Understanding energy prices

Every day were reminded by the media about the current economic difficulties, but its not always easy to understand WHY prices are going up. Thats why weve put together this newsletter, to try and explain whats going on behind the headlines.

energymatters
Do you know... what makes up your bill?
The cost of energy includes much more than just the price we pay for your electricity and gas. Take a look at the simple diagram below. What makes up the average gas bill? Higher unit rates dont have to mean higher bills, were here to help.
Kevin Miles CEO npower Retail

5% VAT 16% Costs Operational

e.g. running costs

-1%
Profit

Change the way you pay Well give you a discount if you pay by Direct Debit throughout the year quite simply because its cheaper for us to collect your payments and we can pass the savings on to you. Find out about Direct Debit please call 0845 0770 171 Pay for what you use, say no to estimates There are around 26 million households in Britain, and getting around all of the ones we supply to read meters isnt easy. So if you give us regular meter reads, it will help to make sure you pay just the right amount. We also have an online Meter Read Reminder service to help you say goodbye to estimated bills. To leave a meter reading call 0800 028 4361 youll need your account number to hand. Contact us for energy efficiency advice All the major energy suppliers have to advise their customers about reducing their use of energy, and at npower our dedicated specialists are committed to helping you do exactly that. For energy efficiency advice call 0800 02 22 20

11% Other Costs 21%

Delivery to your home

44% Costs Wholesale 4%

e.g. metering

Government Environmental Contribution

What makes up the average electricity bill?

4% 16% Costs Operational 16%to Delivery

your home Profit

5% VAT 10% Other Costs 8%

e.g. metering

Government Environmental Contribution

41% Costs Wholesale

This is based on the independent NERA report published in June 2010 and covers all suppliers. The average breakdown of bills is based on annual average consumption figures.

Now turn over to find out more about how were investing to secure energy supplies for the future.

Its predicted that the UK will soon have the largest energy gap in Europe, as around a third of the countrys power stations close over the next few years. Even though were all doing more to save energy at home and in businesses, the demand for energy continues to increase. At the same time, the UK has committed to radically reducing emissions of greenhouse gases. As an integrated energy company, we both produce energy and supply it to our customers, so we have a big part to play in making all

this happen. To do this in a way that remains affordable for our customers and maintains the UKs business competitiveness, we need to invest in a variety of new technologies, including renewables, gas, and new nuclear power. Only then can we be prepared for whatever the future may throw at us, and provide the best possible service to you, our customers. If youd like to learn more about our commitment to future investment for UK energy please visit

npower.com

Did you know...

...We have over 460 wind turbines helping to power homes all over the UK.

Did you know...

...When fully operational our newest gas power station at Staythorpe has the generating capacity to produce enough electricity to power around 2.8 million homes.

Did you know...

...Every year we run education programmes for schools all over the UK and our power stations work closely with local schools and community groups to help them learn more about how electricity is made.

building new gas power stations

Staythorpe
A major new gas power station is in the final stages of construction at Staythorpe in Nottinghamshire. Four generating units capable of producing enough electricity to power around 2.8 million UK homes Reductions in average annual CO2 emissions by up to 7.5 million tonnes compared to an existing coal-fired power station producing the same amount of electricity Long-term benefits for the local economy which include around 80 permanent jobs at the station and lasting investment in the local economy

Were investing more than 700 million in Staythorpe

and renewable energy too

Gwynt y Mr Offshore Wind Farm
Were investing in one of the largest offshore wind farms in the world off the coast of North Wales. Due to be fully operational in 2014 Average annual energy generation will be enough for around 400,000 UK homes Major boost to North Wales economy, with the community continuing to benefit throughout the operational life of the wind farm

Were investing more than 1.6 billion at Gwynt y Mr

The ups and downs of energy prices

This graph shows wholesale gas prices, petrol prices and npowers gas prices from January 2007 to October 2010.
350
350

300

Prices for Jan 2007 are indexed at 100

300

250

350
350

To stop retail energy prices from going up and down constantly, like wholesale prices, energy suppliers look ahead and smooth out the difference in costs.

250

300

200 200
150 150

300

250

250

200 200
150 150

100 100

50 0

50

100 100

50
0

50

07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 09 09 10 07 07 10 10 10 Jan Mar May07JulJul 07 07 07Dec Feb08Apr Aug Oct DecOct 09 090909 Jul AugMayNov09 Aug Oct 10 10 Jun JulFeb 10 10 10Jun Jul Sep Oct Aug Feb Apr Feb 09 09 0909 Jul 10 09 Mar Nov 10 10 Oct Apr Jan Mar May Aug 07 Dec Feb Apr Jun Jun 08 09 09 DecMay 09 09 Oct 10 Dec Feb 10 May Dec Sep Mar May Aug Oct 08 08 Oct 07 07 07 070707 07 07 07 0808 08 08 08 08 08 08 09 0909 09 09 0909 09 10 10 10 10 10 10 10 10 10 10 07 07 07 07 07 08 08 08 08 09 09 09 09 09 09 10 10 09 09 10 10

0 Jan Mar May Jul Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr May Jul Aug Oct Nov Dec Feb Mar May Jun Jul Sep Oct

Jan Mar May Jul Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr May Jul Aug Oct Nov Dec Feb Mar May Jun Jul Sep Oct

Crude oil retail QCC gas npower npower retail QCC gas

Crude oil

Petrol Petrol Wholesale gas cost for year ahead

Wholesale gas cost for year ahead

Energy suppliers may not pass on wholesale cost increases immediately and falling wholesale prices may not immediately result in bill reductions. Weve also included petrol and oil prices in the graph to show how closely they are linked. Petrol companies are able to instantly increase or decrease prices in response to oil prices.

The relationship between wholesale and retail energy prices is complex. As a supplier we buy gas and electricity in advance of when its delivered to you, our customer. The red line on the graph above, shows the amount paid by an average npower gas customer paying by quarterly cash/cheque (QCC). As you can see wholesale energy prices are extremely volatile, because theyre tradable commodities and are therefore subject to global influences.

npm8440/11.10