Why Are Energy Bills So High and What's The Energy Price Cap?

Energy bills have risen dramatically in the last year because the energy price cap has risen. The UK is facing an energy crisis as households have been forced to pay more than 50% more for their energy. This new energy price cap is expected to drive millions of households into fuel poverty for the first time with lower-income households being hit the hardest.

In this article, we will discuss everything you need to know about the energy price cap and things you can do to reduce your energy bills.

What is the energy price cap?

The energy price cap was introduced by Ofgem in 2019. It sets the maximum amount that energy companies can charge their customers for average usage of electricity and gas for a six-month period.

How is the energy price cap calculated?

The energy price cap is determined by several factors including the wholesale cost of energy in the previous six months along with operating costs and taxes. Ofgem reviews the energy price cap every six months and reduces or increases the amount based on these factors.

How much is the energy price cap?

On the 1st of April, Ofgem increased the energy price cap by a record 54%. These changes affected roughly 22 million customers in the UK and mean that households on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year. Prepayment customers are paying roughly £708 more a year – up from £1,309 to £2,017.

Why are energy bills increasing?

The decision to increase the price cap was largely driven by a surge in natural gas prices. National Grid data shows that wholesale energy prices reached record highs of 12.8p per kilowatt-hour in December 2021, more than eight times higher than the same period the previous year (1.5p).

Could I be charged more than the energy price cap?

It is important to remember that the price cap is based on typical usage and is not the maximum that you can be charged. You will have higher electricity bills if you use more electricity than a typical household.

Alternatively, you will pay less than the energy price cap if you use less electricity at home and take steps to conserve energy. Keep reading for tips to help you reduce your energy bills.

What can we expect from the next energy price cap?

Ofgem will review energy prices and release the next energy price cap announcement in August, to take effect in October. According to Forbes, experts estimate that the energy price cap will increase by at least 25% on April’s figure. This means that the average household’s energy costs would be around £2,500 a year.

Households facing fuel poverty should prepare for a further increase by identifying ways to reduce their energy consumption. There are also various government schemes in place to support households that cannot afford to pay their energy bills.

Can I reduce my energy bills?

Everyone will pay more for energy following the energy price cap, but there are things you can do to reduce your energy bills. Here are some of the best ways to spend less on energy:

• Book an energy efficiency survey of your property. According to experts at Nexus, an energy performance certificate (EPC) can help you make your home more energy-efficient and save money on energy.
• You can improve your home’s energy performance by completing energy-saving upgrades such as installing double glazing, adding extra insulation, replacing an outdated heating system, or installing a smart thermostat.
• Shop around and look for an energy supplier offering a better price on energy. Switching to a fixed energy tariff could save you money if you find a good deal.
• Reduce your energy consumption by switching all electronics off from the wall when not in use, making the most of natural sunlight, and turning your heating down by a few degrees. These simple changes can make a big impact on your energy bills.

Summary

Energy prices have reached record highs due to the energy price cap increase and there are expected to be further increases later in the year. Households across the UK are feeling the pinch of the latest energy price cap, but there are things you can do to reduce your energy costs and survive the latest energy price increases.