The energy price crisis continues as the price cap is predicted to rise by 50% in April this year. But why does energy cost so much more these days? What does the energy price cap have to do with you? And, most importantly, what can you do to keep your energy bills as low as possible? Let’s get into it…
Why Are Energy Prices Rising?
The way energy suppliers set their prices is dependent on several factors. At the moment, the most important factors are the global wholesale cost of energy, and the energy price cap.
What is the Energy Price Cap?
The price cap is set by Ofgem, Great Britain’s independent energy regulator, and is designed to make sure prices stay fair. The cap represents the maximum amount energy suppliers can charge consumers on default variable tariffs and prepayment plans. Right now, the price cap is set at £1,277 a year.
Ofgem reassess the cap every 6 months and October 2021 saw the price cap increase by 12% to its highest ever level. The next price cap assessment will come into effect in April 2022, when experts predict it will increase a staggering 50%.
Why does the price cap have to increase? Well, that’s all to do with the global wholesale cost of energy.
Why is the Global Wholesale Cost of Energy So High?
Again, there are many factors at play here, but it started with the cold winter Europe experienced in 2020/2021. The increased demand for energy drained Europe’s stored reserves.
Then, Asia experienced a relatively warm summer and had increased demand for liquified natural gas to run air conditioning units. This meant that those drained energy reserves couldn’t recuperate like they normally would.
Add in some geopolitical issues and it all equals to an unprecedented rise in energy costs!
Can’t the Government Help with Energy Prices?
There is mounting pressure on parliament to step in. Charities like National Energy Action predict that 6 million people could be forced into fuel poverty when the price cap rises.
Various thinktanks have suggested ways the Government could help, including cancelling VAT on energy so that suppliers don’t have to factor that cost into their prices. There is also talk of widening the application of the Warm Homes Discount to support more vulnerable households.
However, nothing has been announced from the Government yet.
Should I Switch Suppliers to Protect Myself Against Rising Energy Bills?
According to money expert, Martin Lewis, the best thing for most people is to stay on their current energy deal.
You might be tempted to switch onto a fixed deal, but fixed tariffs are actually more expensive than variable tariffs right now – something that isn’t usually the case. The cheapest fixed rate deals are currently around 56% higher than the price cap!
The advice is, unless you are offered a deal that is no more than 40% higher than your current yearly rate, it isn’t worth the switch.
How Can Effective Home Help in the Long-term?
At Effective Home, we’ve got all the solutions you need to optimise your home’s energy efficiency. An energy efficient home means you wouldn’t have to turn the heating on as often, or you could actually generate some of your own energy, using solar! These kinds of changes would protect you against energy price rises in the future, because you’ll be using less energy.
First, we can help insulate your home. We use up so much energy trying to heat our homes, and much of that heat is lost into the walls, or through the roof. But, an insulated home will hold on to that heat and you won’t have to run your boiler for so long. Is your home as well-insulated as it could be? Even upgrading to triple-glazed windows can help.
Or, we could help you become your own energy supplier with a home solar set up. Solar panels can help you to gain control over your energy bills by reducing your reliance on the national grid. If you needed another reason to switch to renewable energy technology, this could be it.
We are also experts in getting funding to those who need it most. If you want to optimise your home’s insulation, or upgrade your boiler to a more efficient model, we might be able to give you the financial boost you need in order to afford it.