Since January 2021, the wholesale price of gas has increased by approximately 250%. A number of factors have contributed to the rise, including increased demand, the global pandemic causing a backlog of maintenance at power plants, political tensions in countries that produce gas, and a major incident at one of the key pipelines that supplies gas to the UK.
Despite the price of energy falling to record lows during the start of the pandemic, prices have increased significantly in recent months.
In response to the wholesale price increases, energy companies have increased the energy price cap as of October 2021.
What is the energy price cap?
The independent energy regulator Ofgem reviews and sets the maximum amount that energy providers can charge per unit of energy. It is calculated based on the amount of energy a ‘typical’ customer uses in a year. From 1 October 2021 the cap increased by £135 to £1,277 per year for those on a standard default tariff and by £153 to £1,309 per year for those on prepayment tariffs.
It’s important to note that those amounts aren’t the maximum a customer can pay. If you use more than the ‘typical’ customer, your provider can charge you more. It is just that those figures are used to calculate how much to charge you for each unit of energy to use.
The cap will be reviewed in March 2022 and Ofgem expects the cost to increase again.
For more information visit https://www.ofgem.gov.uk/information-consumers/energy-advice-households/check-if-energy-price-cap-affects-you
How does this affect me?
In short, you are likely to see an increase in your energy bills. You may have already noticed your bills have got more expensive.
The high cost of wholesale energy also means that energy providers are unable to offer customers any deals, so whereas you may previously have been able to shop around for a better deal and switch, this is no longer the case.
It has also caused a number of smaller energy providers to go bust in recent months. This has meant millions of people having to find a new supplier and in most cases their new tariff has increased.
What can I do?
Unfortunately, until the wholesale price of gas comes down, options are quite limited. You’re unlikely to save much money if you go looking for another provider at this moment in time. What you can do though is contact your provider to ensure that you are definitely on the cheapest tariff they provide and not just their standard rate. Contact our Money Advice team if you are struggling to pay your energy bills and we can undertake a financial health check. The Money Advice team can maximise your income and help you make better use of it.
Energy providers often give cheaper rates to people who pay by direct debit, so if you are able to do so, it is worth setting up your payments this way.
The way you use your energy can make a significant difference to your bills. Using a smart thermostat to set heating schedules can help heat your home much more efficiently. Using energy saving lightbulbs and ensuring lights and appliances are switched off when you’re not in the room can bring your overall energy bills down.
It’s also worth submitting meter readings as regularly as you can. If your tariff is estimated, you could be overpaying, in which case your supplier needs to refund you. If you’re underpaying, you need to find out sooner rather than later to avoid a hefty lump sum once your supplier corrects the underpayment.
The Warm Homes Discount Scheme
You may be eligible for The Warm Homes Discount Scheme. This is a government scheme that provides eligible customers with a one-off £140 discount off their electricity bills. The discount is available between October 2021 and March 2022.
Contact your energy supplier to check if you’re eligible for the discount. For more information visit www.gov.uk/the-warm-home-discount-scheme