Why Are Energy Bills Going Up In The UK?

Living costs in the UK have skyrocketed, with energy bills standing out as one of the biggest increases in essential expenses. As the days grow colder and sunlight becomes scarce, energy costs have become a major concern for households. If you're wondering why energy bills keep rising and what steps you can take, we're here to address some common questions. Keep reading to stay informed about everything related to energy bills.

 

Why is there an energy crisis?

As countries started recovering from the pandemic, demand for gas surged once again. However, the supply couldn't keep up with this demand due to shortages. This led to a sharp rise in gas prices starting in 2021.

Several factors have compounded the issue, with some experts calling it a perfect storm:

• Hot weather in Asia increased the use of gas-powered air conditioning, putting extra strain on supplies.
• A harsh winter in Europe last year depleted stored gas reserves, leaving levels far below normal.
• By December 2021, 28 energy providers 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 impacted the energy crisis?

Russia is the world's second-largest exporter of crude oil and the top natural gas exporter. Both are critical for heating homes, fueling vehicles, and powering aircraft.

After Russia invaded Ukraine, the U.S., EU, and UK imposed sanctions on oil and gas imports from the country. This resulted in even less supply, driving energy prices to record highs.

 

Why are energy bills increasing?

Simply put, your energy bills are rising because the wholesale price of energy has soared dramatically. Forecasts predict that bills will continue to climb, with Professor Jonathan Bradshaw of York University warning that over 60% of households could fall into fuel poverty.

Fortunately, the government has implemented new measures to tackle these rising costs. Please note that the information below is accurate as of September 27, 2022.

 

What is the energy price cap?

Ofgem – the UK regulator for gas and electricity markets – introduced an 'energy price cap' in January 2019. This was done due to concerns that many consumers, especially those who hadn't switched to cheaper suppliers, were paying excessive amounts for energy.

To stabilize the energy market, the cap set a maximum rate that suppliers could charge per unit of energy. Initially, Ofgem reviewed the cap twice a year. Recently, reviews have been conducted quarterly.

The energy price cap was set to increase by a staggering 80% as of October 1, 2022, affecting 24 million people across England, Scotland, and Wales.

Thankfully, the government introduced new measures as of 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 the key points of the new energy price guarantee:

• Prior to the announcement, average household bills were expected to rise to £3,549 a year.
• With the new measures in place, a typical household’s energy bill will increase 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.
• 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 not using 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. As mentioned earlier, the energy price guarantee doesn't set a limit on how much you'll pay annually. Instead, your bill depends on your actual energy consumption.

As of 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 represents a national 'average family' consuming 12,000 kWh annually and paying by direct debit.

Most households aren't 'typical', so the term 'price cap' can be misleading to customers.

Several factors influence how much you'll 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 habits. Additionally, you might pay more if you're on a pre-payment meter or pay post-receipt of your bill.

 

How much will the energy guarantee cost, and who will bear the expense?

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 funds by selling financial products known as bonds, to be repaid with interest after several years.

In essence, taxpayers ultimately end up paying more than the government initially raised.

 

How can I lower my energy bills?

Following the question of why energy bills are rising is how to reduce them. First, we recommend minimizing your energy usage at home. For instance, 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 daily adjustments to be as energy-conservative as possible.

Secondly, if a new price cap is announced, always provide an updated meter reading before it takes effect. If you don't, your energy provider may 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?

Alongside the one-time £400 bill discount in October, over eight million low-income households will receive an additional £650.

Additional payments of £150 for disabled individuals and £300 for pensioner households will also proceed.

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

 

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