Over the past year, energy prices have gone up significantly – and this has had a big impact on households all over the UK. Read this article to learn more about why the cost of energy is rising and what support is available for you.
In Great Britain, the price of gas and electricity is regulated by Ofgem – the Office of Gas and Electricity Markets. They work with the Government to set the maximum cost that companies are allowed to charge you for each unit of energy you use.
The price that they set depends on lots of factors, including:
- The wholesale costs of buying gas and electricity
- The work involved to distribute energy to customers, through gas pipes and electricity cables
- The costs involved in meeting social and environmental obligations, such as helping vulnerable consumers and reducing carbon emissions
Why are energy costs rising?
Over the past year, the cost of energy has soared because of a range of factors.* According to the Energy Saving Trust, the demand for energy is much higher than it used to be due to COVID restrictions ending. Also, the conflict in Ukraine has reduced supplies of Russian gas. This means that there is more demand and less supply, which has led to the price increasing for consumers.
In April 2022, Ofgem announced that their ‘Default Tariff Cap’ would be increasing by 54%. This meant that companies were able to charge more for energy, and the average household’s energy bill rose from £1,277 a year to nearly £2000 a year.
The price cap was set to increase again on 1 October 2022 by another 80%. However, the UK Government introduced an ‘Energy Price Guarantee’ last month, which means that energy prices will not be rising as much as they were previously expected to.
Good to know
The Energy Price Guarantee is applied automatically. If you get a message telling you that you need to apply, or asking for your bank or credit card details, this could be a scam. Read our article on how to recognise and avoid scams.
The Energy Price Guarantee
Due to the expected increase in future energy prices, the UK Government announced that they would be implementing an Energy Price Guarantee from 1 October 2022. This is a cap on the amount that energy companies can charge you per unit of gas and electricity.
You may already know that the price you pay for your energy can be divided into two components – the standing charge and the unit rate.
- The standing charge is the amount that it costs to be connected to the grid – no matter how much energy you actually use, you will have to pay a fixed daily standing charge.
- The unit rate is the amount you are charged for each unit (kWh) of energy that you consume.
The table below shows you the average standing charges and unit rates that have been set by the ‘Energy Price Guarantee’. These amounts are shown in comparison to the previous energy costs which were introduced on 1 April 2022. Remember that prices vary by region, so the below numbers are just there to give you an indication – your own charges might be different.
|
Energy type |
Current cost (due to Energy Price Guarantee) |
Previous cost (since 1 April 2022) |
|
Unit rate per kWh |
||
|
Electricity |
34.0p |
28p |
|
Gas |
10.3p |
7.4p |
|
Standing charges per day |
||
|
Electricity |
46p |
45p |
|
Gas |
28p |
27p |
How long will these prices last for?
The Government previously said that energy costs would be frozen for two years (until 30 September 2024).
However, it now says that the Energy Price Guarantee will end in April 2023. This means that the current energy prices are only fixed for this winter.
The plan for energy prices after April 2023 will be determined by the outcome of a review, led by the Treasury.
Understanding your energy bills
It’s important to remember that your total energy bill will depend on the amount of energy you use. You may hear that the Energy Price Guarantee will “freeze prices at £2,500” – but what this really means is that the average household’s energy bill will come out to £2,500.
You could end up paying more than this, if you consume more energy than a typical 2-3 bedroom household. Some people have specific needs that require them to use more energy – for example, needing to heat their home for longer periods of time. Even still, there are some small things you can do to help manage your energy usage.
Support for your energy bills
Separate to the Energy Price Guarantee, there is wider support available to help with the rising energy costs. This includes the Energy Bills Support Scheme, which applies a £400 energy discount per household from October 2022, in six monthly instalments.
The most vulnerable households will continue to receive additional, through Council Tax discounts and ‘Cost of Living’ payments for those who receive certain benefits.
You can find more information on the following websites:
- Money Saving Expert: 15 ‘Energy Price Guarantee’ need-to-knows
- Help for Households: Help with your energy bills
*Information in this article has been sourced from the Energy Saving Trust. This is corroborated in articles by the BBC and the House of Commons research briefing on domestic energy prices.
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