You may already be aware that the price cap will increase on October 1st thanks to Ofgem, the industry regulator. Here is some information to help you understand what’s happening and how to get help if you need it. So without further ado, let’s dive right into it.
Why are energy costs rising so quickly?
The current challenging energy market has led Ofgem, the industry regulator for the energy sector, to raise the price ceiling. We are unfortunately forced to increase our pricing since the energy we deliver to you now costs us significantly more than it did a year ago.
All energy companies’ clients share the same situation. Gas and electricity unit tariffs, as well as standing costs, will be affected by the rise.
These now include supplemental industry expenses including upkeep of the supply network, pledges to cleaner energy, and assistance for vulnerable clients. If you have a fixed rate tariff at the moment, those costs will not change until the conclusion of your tariff period.
What is Ofgem?
The energy sector is governed by Ofgem. The maximum amount energy suppliers like us may charge a consumer on normal variable tariffs is determined by their analysis of wholesale market prices.
This assessment currently takes place every three months due to the current unpredictability of the energy market.
How does Ofgem determine the prices?
By calculating the cost for energy suppliers to provide you with gas and electricity, Ofgem was able to determine the price ceiling. These expenditures include things like buying energy at wholesale prices, keeping supply pipes in good condition, as well as wiring and operational costs.
What is going on with the cost of energy?
We purchase the energy that we deliver to you from the wholesale energy market. Approximately 69% of your payment is made up of the cost of wholesale energy.
Consequently, energy rates must increase as soon as that price does. You can find so much regarding utility bidder so that you know what exactly the cost of energy is.
Why do wholesale energy prices impact my bills?
Energy suppliers won’t see more earnings as a result of the price hike. Less than 1% of your energy cost is accounted for by this. About 80% of the cost of delivering the electricity to your home is spent on network charges and wholesale energy bills.
Moreover, taxes VAT, and environmental programs are included in your bill. Several energy providers have lately been operating at a loss due to the rapid spike in wholesale energy costs. Due to this, all energy providers have to raise their rates to correspond with Ofgem’s price cap level.
What accounts for the sudden increase in energy costs?
1. Storage levels of gas in the UK are “historically low.”
This is according to Jonathan Brearley, the CEO of Ofgem. The UK’s supply is by far the lowest in Europe, even though our European neighbors face comparable issues.
2. Ukraine has been occupied by Russia
A number of nations and businesses have created sanctions on Russia as a result of this tragic turn of events, and many more are intending to lessen their reliance on Russian gas. While the demand does not change, avoiding Russian gas lowers global supply levels. Price is raised as a result.
3. The winter of 2020–2021 was chilly
The 20/21 winter was especially very cold and protracted. We needed more gas than normal to heat our homes and places of business since April was the coldest on record going back to 1922.
4. Most UK energy sources have difficulty
The year 2021 proved challenging for the majority of the UK’s energy sources. Nuclear reactors had unanticipated outages, and a large fire occurred at the IFA power line in Kent, where electricity is imported into the UK via France. Additionally, due to the weather that year, we generated less wind and solar electricity than normal.
5. Gas purchases in South American and Asian nations are increasing
Normally, the UK would have purchased extra gas to replace the missing stockpiles, but the high worldwide demand has rendered that challenging. As South American and Asian nations move away from coal, they have been purchasing more gas, driving up demand.
6. Our European suppliers have independent issues
You would often go to another location if you couldn’t acquire the electricity you needed from one. However, the UK’s regular sources of power are having trouble keeping up with demand.
According to Ofgem, recurring problems with the pipelines in Norway and Russia have led to a decrease in the amount of gas imported from these two key sources.
You can understand how this has rendered matters even messier when you consider that in 2020, 55% of the natural gas we imported came from Norway.
All things considered, it is obvious why the wholesale price of gas increased by 335% during the previous 12 months.
Is this affecting all tariffs?
No. If you are on a regular variable or default tariff, your rate will simply be limited. The following are the British Gas rates that are impacted.
• Safeguard Credit
• Safeguard PAYG v2
• Safeguard PAYG
• Flexi PAYG Mar 2023
• Standard
• Standard Variable
• Nabih Standard Variable
• Nabih PAYG
• Welcome Together
• Standard Variable HM
If you have a fixed-price tariff, your energy costs won’t fluctuate until the time period of your tariff contract expires. Then, to guarantee that you are safeguarded from future price increases, you can select a new fixed tariff.
Alternatively, if you choose to take no action, you will be automatically switched to the Standard Variable Tariff, which adjusts in accordance with Ofgem’s pricing reviews.
Why have standing fees also increased?
Let’s define a standing charge first. We apply a predetermined daily amount known as a standing fee to your energy bill, like a phone line rental. A standing charge was advised to be included in every energy tariff by Ofgem.
In this manner, the pricing structure is the same across all energy providers. Therefore, comparing tariffs and determining which is best for you is simpler.
Your energy supplier will include both the cost of the energy you consume and a standing fee on your energy statement. Because the standing fee is a set sum that covers business expenses, you still pay it even if you don’t use any energy. Sadly, using less energy won’t help you cut this portion of your payment.
Why did my standing charges go up?
You will see a rise in both your standing fee and your unit rates as a result of Ofgem lifting its pricing ceiling. If you have a variable tariff, the total of your standing fee and unit rates cannot exceed the price cap. Ofgem monitors all energy suppliers to help ensure they adhere to this.
The takeaway
So here you go, folks! Now you know exactly whether or not prices will rise in 2022 and what are some of the factors that could aid in its growth.