Why Are Energy Bills Going Up In The UK?

Living expenses in the UK have been climbing steeply, with energy bills standing out as one of the most noticeable increases among basic necessities. As winter approaches and daylight hours shorten, energy costs are becoming increasingly worrisome. If you're curious about why energy bills are surging and what steps you can take, we're here to address some common questions. Read on to learn more about what's happening with energy bills.

 

What's behind the energy crisis?

As countries started recovering from the pandemic, demand for natural gas began to rise. However, supply couldn't keep up, leading to a spike in gas prices starting in 2021. Several factors have compounded this issue, with some analysts referring to it as a perfect storm:

• Hot weather in Asia led to higher gas usage for air conditioning.
• A harsh winter in Europe last year depleted stored gas reserves, leaving levels far below average.
• By the end of December 2021, 28 energy companies in the UK went bankrupt, impacting over two million customers.
• Gas exports from Russia to north-west Europe were already low, and Russia's invasion of Ukraine worsened the situation.

 

How has Russia’s invasion of Ukraine affected the energy crisis?

Russia is the world’s second-largest exporter of crude oil and the largest exporter of natural gas, both of which are crucial for heating homes, fueling vehicles, and powering airplanes. After Russia invaded Ukraine, the US, EU, and UK imposed restrictions on Russian oil and gas imports. This resulted in a further reduction in supply, driving energy prices to record highs.

 

Why are energy bills rising?

Simply put, your energy bills are going up because the wholesale price of energy has skyrocketed. Unfortunately, experts predict that these costs will continue to rise, with Professor Jonathan Bradshaw of York University suggesting that more than 60% of households may fall into fuel poverty. Thankfully, the government has introduced new measures to help mitigate the rising costs. Please note that the information below was accurate at the time of writing this article on September 27, 2022.

 

What is the energy price cap?

Ofgem, the Office of Gas and Electricity Markets in Great Britain, introduced an 'energy price cap' in January 2019 following concerns that many people, especially those who hadn't switched to cheaper providers, were overpaying for their energy. To stabilize the energy market, the cap set a maximum price per unit of energy that suppliers could charge. Initially, Ofgem reviewed the cap twice a year; more recently, they review it quarterly. The energy price cap was set to increase by a staggering 80% as of October 1, 2022, affecting 24 million people in England, Scotland, and Wales.

Thankfully, the government implemented new measures starting October 1 to control spiraling energy costs.

 

Is the government taking action on the energy crisis?

Starting October 1, 2022, the typical household energy bill will be capped at £2,500 annually. Here are some key points about the new energy price guarantee:

• Prior to the announcement, typical household bills were expected to rise to £3,549 annually.
• With the new measures in place, a typical household's energy bill will rise from £1,971 to £2,500.
• The 'price cap' isn't a strict limit on how much you pay; your bill still depends on your actual energy usage.
• The energy price guarantee will last for two years.
• This plan applies to all households in England, Scotland, and Wales.
• Every household in the UK will receive a £400 energy bill discount in October.
• Households that don't use mains gas and electricity, such as those relying on heating oil, will receive an additional £100 discount.

 

How will the energy price guarantee work?

The government's price guarantee replaces the existing energy price cap. However, as mentioned earlier, the energy price guarantee doesn't restrict how much you'll pay annually. Instead, your bill depends on how much energy you consume. Starting October 1, dual-fuel customers on a standard variable tariff will pay:

• 34p per kWh of electricity
• 10.3p per kWh of gas

Based on these figures, a typical household can expect to pay around £2,500, which is where the figure originated. The £2,500 figure refers to a national 'average family' using 12,000 kWh per year, paying by direct debit. Most households aren't 'typical,' so the term 'price cap' can be misleading to consumers.

Several factors will influence how much you pay, including the number of people in your household, whether you're on a fixed or variable deal, the type of property you live in, and your energy consumption. Additionally, you might pay more if you're on a pre-pay meter or pay after receiving your bill.

 

How much will the energy guarantee cost, and who will foot the bill?

The government stated that the energy package would cost £60 billion over the next six months. These costs will be covered by increased borrowing, where the government raises money by selling financial products called bonds, to be repaid with interest over several years. In essence, taxpayers ultimately pay back more than the government initially raised.

 

How can I reduce my energy bills?

Following the question of why energy bills are rising, the next logical question is how to reduce them. First, we recommend trying to minimize your energy usage at home. Turn off lights when not in use, air-dry clothes instead of using a dryer, and switch to energy-efficient products like light bulbs. Small changes in daily habits can make a big difference.

Secondly, if a new price cap is introduced, always submit an updated meter reading before it takes effect. If you don't, your energy provider will estimate your usage, potentially charging you a higher rate even if you've reduced your consumption.

 

Can I get financial assistance to help pay my energy bills?

In addition to the one-time £400 discount on bills in October, more than eight million low-income households will receive an extra £650. Disabled individuals will also receive £150, while pensioner households will get £300.

Vulnerable families can seek additional support through government programs like the Warm Home Discount and the Household Support Fund. You may also qualify for assistance through hardship funds offered by energy suppliers. For more information on what to do if you're struggling to afford your energy bills, visit Citizens Advice.

 

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