The energy price cap is rising: what it means for you and what you can do
The energy market is currently facing a massive challenge due to the unprecedented increase in global gas prices. Wholesale gas prices have reached record highs over recent months – this was triggered by a combination of factors, including a cold winter across Europe, increasing demand, and a reduction in Russian pipeline gas production that lowered supply.
The Government recently announced that the current energy price cap, set by the energy regulator Ofgem, has been increased sharply to an average of around £1,971 per year. The cap will increase from 1 April, marking a hike of approximately 54% from the previous cap. According to Ofgem, the price cap rise is estimated to affect 22 million customers.
Customers on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year; while repayment customers will see an increase of £708 from £1,309 to £2,017.
What is the energy price cap, and why has it risen?
Introduced on 1 January 2019 by Ofgem, the energy price cap puts a limit on the maximum amount suppliers can charge for each unit of gas and electricity a customer uses.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has taken place over the previous six months, with wholesale prices quadrupling in the last year.
Under the price cap mechanism, energy companies will now be allowed to pass on these higher costs from April when the new level takes effect. This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
The Government has announced new measures
The rise of the energy price cap will be extremely worrying for many people, especially those struggling to make ends meet. To make matters worse, it comes at a time when the cost of living is soaring, with inflation at its highest rate in thirty years. The Resolution Foundation has warned that this will push around a quarter of households into fuel poverty.
In a bid to ease the financial burden on households, chancellor Rishi Sunak announced that homes in England on council tax bands A to D would receive a £150 council tax rebate, meaning that 80% of council taxpayers in England are eligible for the savings.
All domestic electricity customers will also be eligible for a £200 one-off discount on energy bills to be repaid in £40 instalments over five years.
Facing the crisis: the importance of reducing our fossil fuels consumption
Despite the Government’s intervention, the rise will affect hundreds of thousands of UK households. This crisis has brought the importance of reducing their dependence on fossil fuels by focusing on energy efficiency and greater use of renewables.
More energy efficiency and clean energy sources will minimise our exposure to the volatility of the global energy market while also playing a crucial part in our goals to reach net zero.
But what actions can we take to control and reduce our energy costs while also contributing to the world’s need to reduce carbon emissions? Here are a few quick tips that could help.
Actions you can take to help reduce your energy costs
1) Install a smart meter
The best way to track your energy consumption is to install a smart meter. It’ll show you accurate, not estimated bills without needing to take a manual reading, making you more aware of your energy habits and ensuring you’re only paying for the energy you use.
Moreover, smart meters offer you access to dynamic time-of-use tariffs, energy tariffs that encourage customers to use energy at off-peak times and be financially rewarded for their flexibility.
2) Ensure your home is energy efficient
With the current crisis, it’s more important than ever that your household is as energy efficient as possible. From installing a smart thermostat to insulating your loft, there are many ways you can make sure you are saving money by not wasting energy at home. Find out more tips in our blog.
3) Install solar panels & battery storage
Solar panels offer a great way to generate your own green electricity and keep your energy costs down by importing less energy from the grid.
If your solar panels are connected to a home battery storage system, you can also store up your energy during the day and then choose to use it at peak times if you need to. So, if you have little need to use power for periods of the day (e.g. you’re out at work), you can save up solar energy generated and then use it when you most need it. Even if it requires an initial investment upfront, investing in solar energy & battery storage will definitely have a great return in the long run, protecting your household against rising energy bills.
The combination of solar PV with battery storage is also a win for the environment: the more of your self generated renewable electricity you can store and use, the less electricity you will have to take from the grid, contributing to the planet’s shift towards clean energy. If you’re interested in learning more about the benefits of energy storage, you can find more information on our blog.