Why are your energy prices rising?
Energy prices are rising due to an increase in the wholesale cost of gas. This is, in part, due to global factors which are out of the Government’s hands. For instance, global demand has increased from places such as Europe and China as countries transition away from coal.
More recently, a particularly cold winter in 2020-21 increased energy demand, reducing the ability of energy companies to replenish their gas reserves. That, coupled with low winds, forced energy suppliers to dig further into gas reserves as wind turbines were unable to produce enough energy.
These various factors have pushed the cost of gas to an all-time high, costing energy providers more than three times the wholesale price as it did last year.
What is the energy price cap?
The price cap is the maximum amount that all UK energy suppliers can charge for each unit of gas and electricity used on a default tariff. The cap, which is calculated by Ofgem, the independent energy regulator, stops energy suppliers from charging too much. Your energy bill will go up or down depending on how much energy you use, but the price per unit and the standing charge will never go above the price cap.
Since the energy price cap was last updated in August 2021, the current level does not reflect the subsequent unprecedented record rise in gas prices.
As a result, Ofgem has announced that the energy price cap is to be increased from 1 April 2022.
How will this affect you?
While some of you will have had your prices gradually rise over the past few years, you might be seeing an immediate rise, or you might expect to see your bills rise in the near future. This is due to the wholesale rise and the energy price cap being increased by Ofgem.
The price cap for those on a default tariff (sometimes also called a standard variable tariff) paying by direct debit will increase by £693 from £1,277 to £1,971 per year.
It is important to note that you will not be affected by the increase until your current contract with your supplier ends if you are under a fixed contract.
What support is available to help pay your bills?
The Government has taken steps to tackle the cost of living by reducing the Universal Credit taper rate, increasing the National Living Wage, cutting tax by £330, freezing fuel duty for the twelfth year in a row, and launching a £1 billion Household Support Fund to help the lowest-income households with their bills.
Following Ofgem’s increase of the price cap, the Government has announced a range of measures worth at least £550 per household to tackle the rising cost of living and ease the burden of increased energy costs:
(1) A £400 energy bill relief grant for all households. This will be delivered by energy suppliers from October 2022, with payments spread over six months.
(2) A non-repayable £150 cash rebate for homes in Council Tax bands A-D, cutting 90% of Council Tax bills across Gedling by £150, helping both lower and middle-income families. Those paying via direct debit should receive the rebate automatically in April 2022. Those not on direct debits will have their claims processed by Gedling Borough Council at a local Post Office and letters will be sent to those households.
(3) £144 million of discretionary funding for local authorities to support households not eligible for the council tax rebate.
(4) Gedling pensioners already receiving winter fuel allowance will also receive an extra £300 in November / December 2022.
(5) Gedling household on means-tested benefits will receive an extra £650 cost of living payment - All those who live in Gedling and are in receipt of Universal Credit, Jobseekers Allowance, Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Pension Credit are eligible. This one-off cash payment of £650 will be paid out from the DWP in two separate instalments, with the first due from July 2022 and the second in the Autumn. Payments from HRC for those on Tax Credits will follow one month later.
(6) A £150 disability cost of living payment will be paid to Gedling residents who are in receipt of disability benefits - including Personal Independence Payments, Disability Living Allowance, and Attendance Allowance. This one-off cash payment worth £150 will be paid out from the DWP in September 2022.
In addition to these steps, the Government is continuing with plans to increase the Warm Homes Discount and extend eligibility by one third to an extra three million vulnerable households, worth £150.
If you are struggling to pay your energy bills, you can seek free financial advice from a range of resources:
Vulnerable customers can call the Citizens Advice Consumer helpline free on 0808 223 1133 Monday to Friday 9 am to 5 pm.
Money Help offers guidance and advice on financial matters and sources of help: What to do if you’re worried about your energy bills after the price cap rise announcement (moneyhelper.org.uk)
Citizens Advice offer free advice on how to better manage your bills and what to do if you cannot pay your energy bill: Your energy supply - Citizens Advice