Why are Energy Prices Rising?

Energy prices hit an all-time high in December last year, reaching as far as 470p per therm. This is roughly nine times higher than energy prices from the previous year.

The UK is facing a “national crisis” over soaring wholesale gas and electricity prices and more and more households are being affected by fuel poverty.

In this article, we will discuss why energy prices and rising and what you can do to reduce your utility bills despite the increase.

What is the energy price cap?

Ofgem introduced the energy price cap in January 2019 to stop energy companies from simply charging customers a higher rate when wholesale prices increase.

The energy price cap sets a maximum amount that energy suppliers can charge per unit of electricity and gas each year. The cap is reviewed twice a year and updated to reflect wholesale energy prices.

When is the price cap changing?

In February, Ofgem announced that the price cap will be increased by £693 in April 2022. This means the average utility bills will increase to almost £2,000 a year. The changes will affect approximately 22 million customers in the UK.

It is likely that the energy price cap will increase again in October. According to Martin Lewis, you can expect to see a 24% rise on top of the April rise which would increase average household bills to almost £2,450 a year.

Why is the price cap increasing?

The increase is largely being driven by a record rise in global gas prices over the last 6 months. Statistics reveal that wholesale gas prices have more than quadrupled this year and risen by more than 70 per cent since August alone.

Energy suppliers cannot sell electricity and gas to their customers for less than they paid for it. Many companies have been forced to close because of the rising wholesale energy prices. This includes Together Energy Retail, Entice Energy and Orbit Energy Limited, to name a few.

How can I reduce my energy bills?

Be mindful of your energy usage

Becoming more eco-conscious will help you lower your energy usage and save money on energy. Simple changes to your habits can significantly reduce your carbon footprint and have a big impact on your utility bills. Applying for a survey of your property will allow you to be issued a commercial energy performance certificate, the rating you receive can be improved on in a number of ways.

Here are some quick tips to reduce your energy usage:

• Always turn electronics off from the wall when not in use.
• Switch off unnecessary lights and take advantage of natural lighting.
• Download a smart app to monitor your electricity usage at home.
• Seal drafting windows – this could save you around £40 a year on energy bills according to Energy Saving Trust.
• Let clothes air dry on a hanger instead of using a tumble dryer. 

Switch to a fixed rate tariff

Now could be the ideal time to switch to a fixed energy tariff if you can find a good deal with a new supplier. If you move to a fixed tariff, then your unit price for gas and electricity will remain the same for the duration of the plan, which is typically between 12 and 24 months.

This means you won’t have to worry about energy price increases during your contract. You will pay a fixed amount for your gas and electricity each month which will make it easier to manage your household bills.

Complete energy-saving upgrades

Completing energy-saving updates is a great way to improve your home’s energy performance and save money on your utility costs. There are dozens of quick and straightforward ways to make your home more energy efficient.

You may want to start by arranging an energy efficiency survey of your property. This will help you identify which improvements will be most effective. The most common energy-saving updates include adding extra insulation, installing smart technology like an intelligent thermostat, and upgrading inefficient appliances.

Conclusion

Many homeowners are feeling anxious about how they are going to afford to pay their utility bills once the energy price cap is increased in April. The price cap increase will affect many households in the UK and it’s crucial that you prepare.