How the energy industry works

As part of our commitment to being transparent and straightforward, it’s important that we explain how we source our energy, what it costs and how this affects our prices.

But first, we need to explain how the energy industry works. Put simply, there are three parts:

Power stations and generators

These range from big coal-fired power stations to small hydroelectric plants and wind farms.

Transmission and distribution

This is the high voltage network of overhead cables and pylons, as well as underground pipes and cables that transport energy to your home.

Licensed suppliers

This is what we are – the business you choose to buy your energy from. There are six big suppliers – such as British Gas and npower – and a few small independent suppliers, including us.

Supply and demand

Suppliers buy as much energy from power stations and energy wholesalers as their customers consume. In other words, they match customers’ demand with energy supply.

Suppliers also decide how to price their product and therefore what to charge their customers. From the money they receive from customers through their energy bills, suppliers then pay the power stations and the transmission and distribution network. So, just as energy flows from generators to households, money flows back from customer to generator.

Crucially, each supplier also chooses what type of energy to buy. It could be clean renewable energy or coal-fired energy. But whatever a supplier chooses, it all gets pumped into the national grid and mixed up alongside other suppliers’ energy in one big soup.