Why Are Energy Bills Going Up In The UK?

Living expenses in the UK are skyrocketing, and energy bills are one of the most noticeable increases among daily essentials. With the arrival of colder weather and shorter daylight hours, these rising energy costs are becoming increasingly worrisome. If you're curious about why energy bills are going up and what you can do to manage them, we're here to address some common questions. Keep reading to stay informed about everything related to energy bills.

 

What's causing the energy crisis?

As countries began recovering from the pandemic, demand for natural gas surged. However, supply couldn't keep pace with this demand, leading to a sharp increase in gas prices starting in 2021. Several factors have since impacted both supply and demand, with some analysts calling it a 'perfect storm':

• Hot weather in Asia increased the use of air conditioning, driving up gas consumption.
• A harsh winter in Europe last year depleted stored gas reserves, leaving levels much lower than usual.
• By the end of December 2021, 28 energy companies in the UK went bankrupt, affecting over two million customers.
• Gas exports from Russia to north-western Europe were already down, but Russia's invasion of Ukraine worsened the situation.

 

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

Russia is the world's second-largest crude oil exporter and the largest natural gas exporter. These resources are vital for heating homes, fueling vehicles, and powering airplanes. However, following Russia's invasion of Ukraine, the US, EU, and UK imposed restrictions on oil and gas imports from the country. Consequently, the supply further dwindled, pushing prices to record highs.

 

Why are energy bills increasing?

Simply put, your energy bills are rising because the wholesale cost of energy has surged dramatically. Unfortunately, experts predict that these costs will continue to climb. Professor Jonathan Bradshaw of York University predicts that more than 60% of households will fall into fuel poverty. Thankfully, the government has implemented new measures to tackle the rising costs. Please note that the information provided below was accurate as of September 27, 2022.

 

What is the energy price cap?

In January 2019, Ofgem—the Office of Gas and Electricity Markets in Great Britain—introduced an 'energy price cap.' This came after 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 suppliers could charge. Initially, Ofgem reviewed the cap twice a year; more recently, reviews occur every three months.

The energy price cap was set to increase by a staggering 80% on October 1, 2022, affecting 24 million people in England, Scotland, and Wales. Thankfully, the government introduced new measures on October 1 to control soaring energy costs.

 

Is the government taking action against the energy crisis?

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

• Before the announcement, typical household bills were expected to rise to £3,549 per year.
• 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 limit on how much you pay. Your bill still depends on your energy usage.
• The energy price guarantee will remain effective for two years.
• The 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 not using mains gas and electricity—such as those using 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 limit how much you'll pay annually. Instead, your bill depends on your actual energy consumption. 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 this rate, a typical household can expect to pay around £2,500, which is where the figure comes from. 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' might be misleading to customers.

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 how much energy you consume. Additionally, you may 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 cover it?

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

 

How can I reduce my energy bills?

The logical follow-up question is how to reduce energy bills. First, try 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 LED bulbs. Make small, everyday changes to conserve energy.

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

 

Can I get financial assistance to help with 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. Additional payments of £150 will go to disabled individuals and £300 to pensioner households.

Vulnerable families can seek further support through government programs like the Warm Home Discount and the Household Support Fund. Energy suppliers also offer hardship funds. For more information on what to do if you're struggling to afford your energy bills, visit Citizens Advice.

 

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