Energy Prices Continue to Dramatically Rise
As of 1 April 2022, the UK’s energy cap increased for more than 22 million people. Ofgem reviews the price cap twice a year, implementing changes in April and October. Homeowners on default tariffs who pay by direct debit will see their bills increase by £693 per year (roughly 18 million homes). Prepayment customers will see an increase of £708 a year (4.5 million homes).
The energy cap raise saw energy bills increase by 54% in April 2022.
Use these links to quickly jump to a section
- What is the energy cap?
- How is the energy cap calculated?
- Why is the energy cap rising?
- What is the Government doing to help?
- How can I save on energy bills?
What is the energy cap?
The price cap was introduced by the energy regulator Ofgem in January 2019. The price cap limits the rate and standing charge energy suppliers can charge for their energy protecting homeowners from receiving unfair price tariffs.
The energy cap is only applied to standard and default tariffs. Therefore, if you are on a fixed-term energy offer, the price cap won’t apply.
How is the energy cap calculated?
- Energy market prices – The wholesale price of gas and electricity has the most significant impact on the energy cap.
- Network costs – The costs for maintaining the electricity wires and gas pipes that carry energy to homes and businesses.
- Operating costs – These include the costs of billing and metering services and the installation of smart meters.
- Policy costs – These costs help suppliers support government schemes to save energy, reduce emissions and encourage homeowners to invest in solar and renewable energy, such as air source heat pumps.
- VAT – VAT is set at 5% for energy.
Why is the energy cap rising?
Energy prices are increasing due to an ongoing shortage of energy worldwide. Post pandemic, the demand for gas increased while there was a shortage in supply. As a result, 29 energy suppliers in the UK are going out of business.
Ofgem introduced the price cap rise in April 2022 to allow energy companies to pass on the higher costs to their customers. This is because energy companies can’t supply electricity and gas at a lower rate than the suppliers pay for it.
What is the Government doing to help?
The government announce a £9.1 billion package (Energy Bills Support Scheme) to support the homeowners with the energy price increase. The package includes:
- A £200 discount on energy bills this Autumn, which will be paid back automatically over the next five years.
- A £150 non-repayable Council Tax Rebate for all hoseholds within Council Tax Bands A-D.
- £144 million of discretionary funding for Local Authorities to support households who aren’t eligible for the Council Tax Rebate.
Air Source Heat Pump
How can I save on energy bills?
Smart Export Guarantee tariffs (SEG) pay you for any electricity you don’t use and that can be sent back into the National Grid. That’s right, the electricity supplier pays you a fee per unit of electricity you send back to the grid.
You may be eligible to apply if you use one of the following renewable emery technologies:
- Solar PV Panels
- Anaerobic Digestion
- Micro Combined Heat and Power
SEG tariffs vary, the can be fixed or variable. Fixed SEG tariffs will pay you a predetermined rate per kWH. Variable tariffs rates vary depending on the market.
The amount you could save will depend on the following factors:
- How much electricity your export to the grid
- The rate you pay for your electricity
- Your export tariff rates
- How much electricity you use yourself
Air Source Heat Pumps
Air Source Heat Pumps (ASHPs) are an excellent energy solution. ASHPs are three times more efficient than a standard boiler which could save you between £455 and £485 a year. For every 1kWh of electricity, air-source heat pumps can produce 3kWh of heat.
Back in October 2021 the Government introduced the Boiler Upgrade Scheme. The scheme offers up to £5,000 per household to change their gas boiler to a heat pump. As a result, if you are renovating your home, it makes sense to switch your boiler for an air source heat pump installation.