You’d have to have been living under a rock not to have noticed that UK energy bills have been going up throughout 2021 and 2022, with further sharp rises still predicted when the energy price guarantee is set to end in April 2023.
With a government in flux and a global economic landscape so changeable, nobody has a 100% foresight on what will happen to UK energy bills over the next 12 to 24 months, but at HappyLoft we want you to stay as informed as possible as energy bills take a larger and larger slice out of our monthly household incomes.
To understand the energy market and the prices we pay, you need to understand the energy price cap and how it works in the UK energy market.
What is the Energy Price Cap?
Ofgem is the government-appointed body that regulates the UK energy market, which itself is made up of private energy companies.
There are The Big Six Energy Companies who have the largest market share, and many other smaller firms too.
Ofgem’s job is to ensure that no company obtains a monopoly over the others that would cause disruption, and to set the Energy Price Cap.
The Energy Price Cap limits how much the energy companies can charge people for each unit of gas or electricity they use.
Note: it does NOT limit the total bill, only the rate at which energy is purchased.
But in 2021 and 2022, Ofgem was forced to raise the energy price cap several times, very sharply, increasing the bills of any household not on fixed rate energy deal.
How much have UK energy bills gone up by?
UK energy bills have seen an almost meteoric rise over the past 12 months in comparison to previous years.
From 2013 through to 2020, the price of gas (which most home central heating systems use as fuel, but is also used in gas power plants to produce electricity) has stayed relatively stable, or fell occasionally.
For comparison, the average annual gas bill was around £700 in 2014.
In the meantime, electricity prices have gradually risen.
However, for reasons we will tackle later in this blog, wholesale gas prices skyrocketed in 2021 and 2022, causing the energy price cap to follow suit.
The price cap rises have been as follows:
- 12% in October 2021
- 54% in April 2022
- 80% in October 2022
This has brought the average annual energy bill from jsut over £1000 to over £2000, putting a strain on many households.
But the story doesn’t end here.
Are energy prices predicted to go up?
With energy prices already doubling within a year, you’d like to think that things couldn’t get much worse for UK households. However, Ofgem confirmed that further price rises were inevitable, and Cornwall Insights predicted annual bills would top £4000 within another year unless the global energy market returned to calm.
HOWEVER, the UK Government responded…
The Energy Price Guarantee
With growing pressure on the government to act, the Energy Price Guarantee was created as a replacement for the Energy Price Cap.
This fixed the energy prices so that the average household should pay around £2500 per year for their energy. This is still considerably higher than prices prior to 2021, but better than the predictions.
Initially, the Energy Price Guarantee was set to last 2 years (2024), however this was reduced to 6 months pending a review by incoming Chancellor Jeremy Hunt.
To predict what might happen to energy prices beyond April 2023 when the Energy Price Guarantee ends requires a bit of a crystal ball.
Global energy prices are not predicted to return to anything like normal for several years, and with the Governement reluctant to commit to extending the guarantee, it is difficult to see prices doing anything but continuing to rise for consumers.
Why are energy bills rising?
Energy is big business, and with fossil fuels nowhere near fully replaced by renewable energies, shortages and overuse can cause big issues and inflate the price.
A perfect storm of factors has caused energy prices to rise, including post-pandemic inflation, global economic instability and in the case of gas, the 2022 Russian invasion of Ukraine having a huge knock-on effect on the price Europe pays for energy.
While dependence on gas is being reduced this will take time so prices are reportedly likely to stay high for some time.
What can people do about rising energy bills?
While those of us who remain on a variable energy tariff (including this writer) and are therefore subject to the price rises for the foreseeable future, becoming more energy efficient has now become a priority to reduce costs.
Some energy saving tips are obvious, like switching off the lights and using the tumble dryer less, however some seemingly pricey modifications now look cheap in comparison to the money they can save – check out our blog on Loft Insulation vs Energy Saving Hacks.