Energy

inflation

The average household in the UK is looking at an increase of £700 per year on their energy bills, but your bills could rise even higher, and are set to rise again.

What is energy inflation?

Energy inflation is something we’re all experiencing.  In short, because the energy price cap has moved.  The energy price cap is essentially a maximum price that is calculated by the government regulator Ofgem to make sure that energy companies can’t charge you whatever they like.

However, the price cap reflects costs, which means that if the price that suppliers have to pay goes up, so does the price they can charge.  The energy price cap doesn’t work as a subsidy, so when the cost of supplying energy to customers rises, then that cost is passed to customers.

And prices are forecasted to continue rising.

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The future of energy prices

Prices Aren’t Coming Down

Unfortunately for us as customers, energy prices are not going to come down.  There are lots of reasons why; energy is generated mostly by using fossil fuels, and they can’t be replenished, so once they’re gone, they’re gone.  And the more we use, the less of them there are, so the price goes up.

The Electric Vehicle Revolution

With the plans from the UK government to make all new cars sold in the UK exclusively electric vehicles from 2030, this will inevitably add more demand for electricity and strain on the system.  Plus, whilst the price of “filling up” an electric vehicle by fully charging it is significantly cheaper than traditional diesel or petrol, charging your vehicle overnight at home is going to add that cost on to your energy bill.

Global Instability

The fact is that we simply cannot tell anymore what is going to affect global prices next, for good or bad.  Energy prices in the UK can be affected from things close to home like leaving the EU, to further afield like the war in the Ukraine, to things at the other side of the world like an earthquake in Japan changing where they choose to source their power, adding another global consumer to the energy market.

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Protect Against Rising Bills

Solar panels and battery systems shield you against the rising costs of energy by reducing the amount you need to buy from the grid.  The only mainstream product on the energy market today that generates its own electricity is solar power.  Our low cost systems generate electricity around the clock, despite the myths!  Not only will you pay for less as you use less, investing in solar energy now will actually protect you from rising future costs too, as the more prices rise, the more you will save on what you would have paid!

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Frequently Asked Questions

Why have energy prices gone up so much?

In short, the energy price Cap has gone up. The price Cap is the maximum unit and daily standing charge that energy suppliers can charge but is often quoted as an annual figure in the press.  The cap was introduced in April 2017 for around four million households with prepayment meters. In 2019 the government extended it to cover the 11 million households that were then on standard tariffs, which historically tended to be the most expensive in the market.

The price cap limits the rates a supplier can charge for their default tariffs. These include the standing charge and price for each kWh. The cap is a limit on how much you can be charged for the energy you use, rather than a strict maximum you can be charged overall, so customers with higher energy bills and larger homes will pay more.

What is the new Cap from April 2022?

The energy regulator, Ofgem, has increased the price cap by more than 50 per cent, meaning the average household could be charged about £2,000 a year, up from £1,277. A typical customer paying by direct debit will now pay 28p per kWh for electricity and 7p per kWh for gas. The cap also only applies to variable rates, rather than fixed tariffs, which can be even higher.

There are estimated to be about 22 million households on variable rates, and the figure has increased in recent months as smaller suppliers have gone bust, forcing their customers on to variable tariffs with other providers. OFGEM have to balance: (1) the price cap reflects the “real world” prices that energy companies are/will be paying on the wholesale markets with (2) keeping prices as low as possible to maintain inflation and reduce fuel poverty.

What’s gone wrong?

The cap is set using historical wholesale prices on the basis that most energy companies will forward buy gas and electricity many months in advance. By contrast, fixed deals typically more closely reflect wholesale prices at the point at which the customer signs up. Whilst the big five energy suppliers have the financial resources to forward buy energy to maintain future prices, most of the new companies did or could not as they never expected wholesale prices to increase so suddenly.

When their cost prices escalated, these companies could not pass on the increases to their customers due to the cap. So, in effect they were having to sell below cost and many went bust. (26 energy companies have failed since August 2021).

Will energy prices continue rising?

It’s expected that global wholesale prices will continue to increase in the short term and not likely to come down in the near future. According to research by Evergen Systems, “reducing fossil fuel consumption to meet decarbonisation targets will lead to increases in overall electricity consumption. Whether at an individual household or societal level the demand for electricity will increase underpinning a continued upward trajectory of electricity prices for next 20 years”.

Almost half of the UK’s current nuclear capacity is due to be decommissioned by 2025 and only one new plant, Hinkley Point C, is currently under construction. If no other new nuclear power stations are built, the UK’s nuclear capacity in 2050 will be a third of what it is today. Britain has announced ambitious targets to reduce carbon emissions. No more new petrol/diesel cars and all heating, cooking and hot water from 2030 is expected to increase electricity demand by 250%.

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We offer a free and no-obligation home survey to review your energy usage and spend to offer you a personalised report that demonstrates how much solar can save you.

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