What The New Energy Price Cap Means For Your Bills

Turn on the TV or browse any news site, and you'll quickly notice how often the energy crisis and rising cost of living come up. Rising utility bills have caused widespread concern, with households across the UK bracing themselves for the impending shock of higher energy costs. As these bills continue to climb, families are feeling the strain more than ever.

Recent developments have sparked intense discussions about the impact of new energy and gas prices on everyday people. The urgent need to cut carbon emissions adds another layer of complexity to the issue. Amid all this chaos, one term keeps cropping up: the energy price cap. But what exactly is it? Could solar power be part of the solution?

 

Understanding the Price Cap

Introduced in 2019, the price cap limits the maximum amount energy companies can charge customers for their energy usage. It's important to note that this isn't a cap on the total bill but rather reflects typical usage patterns. It's calculated based on your electricity and gas consumption over a six-month period, rather than the traditional fixed-rate model.

The purpose of the price cap was to protect consumers from exploitation by energy companies. The idea was to ensure fair pricing while preventing excessive profits. However, recent increases have made this difficult to achieve. In October 2021, the cap rose by 12% to £1,277. From April 1st to September 30th, 2022, another dramatic hike of 54% is expected, pushing annual costs to £1,971. Prepay customers will face an additional £708 increase. By October 2022, the cap could rise even higher, partly due to the ongoing conflict between Russia and Ukraine.

Starting April 1st, your electricity bill will see significant increases. Until March 31st, you’ll be paying around 20.8p per kWh with a daily standing charge of 24.88p. From April, this will jump to 28.34p per kWh, with a massive standing charge of 45.34p per day. These changes will affect over 22 million default tariff customers or those who have switched to new suppliers following the collapse of previous ones. In 2021 alone, 29 energy companies folded, leaving 4.3 million customers behind. Most of these customers were automatically transferred to other suppliers, and the price cap still applies to them.

Experts predict that around 2 million households will fall into fuel poverty due to these measures. Even median-income households are feeling the pinch. It’s no surprise that more and more people are turning to solar energy for relief.

 

Why Are Energy Prices Rising So Sharply?

These unprecedented price hikes reflect record-breaking increases in global wholesale energy prices. The surge in electricity costs directly stems from skyrocketing gas prices. Many electricity suppliers rely heavily on gas for energy production, so it was inevitable that we’d see a broad increase in energy costs.

Several factors contributed to this wholesale price spike. Cold Siberian winds sweeping across Europe in 2021 led to increased heating demands. Additionally, Asia’s rising demand for liquefied natural gas (LNG), particularly in China, put pressure on global supplies. Factories in China, which are among the largest consumers of LNG, needed energy to keep operations running smoothly.

As restrictions eased post-lockdown, energy demand surged globally. This combination of factors created a perfect storm for energy prices. Since energy companies can’t afford to pay more for supplies than they charge their customers, many are now seeking alternative ways to meet their energy needs.

Project Solar can help you explore whether switching to solar power is right for you.

 

The Link Between Electricity and Gas

Everyone knows that gas prices have soared worldwide. But why does this mean electricity prices are also rising? The UK heavily relies on gas, with 85% of homes using gas-powered central heating and electricity generation. This makes the issue particularly relevant for Britons.

It’s not just gas prices that are climbing; the UK still depends heavily on fossil fuels for electricity production. In 2016, 42% of Britain’s electricity came from gas-fired power plants. Given this close relationship between the two energy sources, it’s clear that rising gas prices will inevitably drive up electricity costs.

Besides dependence on gas, other factors have influenced electricity prices. According to Ofgem, the rise in electricity bills is partly due to the cost of moving customers whose suppliers went bankrupt, increased network maintenance costs, and rising policy costs. Green levies and the Warm Home Discount rebate have added further expenses to existing rates.

With the energy price cap unlikely to drop anytime soon, energy prices are likely to remain high, especially given the ongoing European conflict.

 

How Will the Russia-Ukraine Conflict Impact Prices?

Russia’s invasion of Ukraine has already sent gas prices spiraling. Russia supplies 40% of Europe’s gas, although it is not the UK’s primary supplier. Nonetheless, the economic fallout from the conflict will undoubtedly ripple through UK energy prices.

Ofgem plans to announce the next price cap in October. With prices already surging, experts predict the cap could rise to as much as £3,000 from the current £1,971, largely due to the conflict. The government has introduced measures to help mitigate potential financial difficulties in the coming months. If you need advice, contact your energy provider, as additional support may be available.

Here are some practical tips to stay financially savvy during these uncertain times.

 

Ways to Save Money on Energy Bills

It’s undeniable that we’re using more energy at home, largely due to modern homes being filled with multiple electronic devices like TVs, laptops, and phones. Working from home since the pandemic has also increased our energy consumption.

Making small adjustments can significantly reduce your energy usage. Simple steps include lowering your thermostat by one degree, switching to LED light bulbs, sealing drafts, and waiting until you have a full load before running the washing machine or dishwasher. Knowing the energy efficiency ratings of your appliances before purchasing can make a big difference in the long run.

Double-glazing your home will allow you to lower your thermostat settings, as it will retain heat more effectively.

 

Lighten Your Load with Solar Power

Installing solar panels is a fantastic way to cut your energy bills permanently. Contrary to popular belief, solar panels don’t require constant sunshine to function. They store energy in batteries, ensuring your home remains powered even at night.

Harnessing solar power gives you more control over your finances. You no longer have to worry about fluctuations in global energy markets or conflicts affecting your energy costs. Plus, solar energy is far more cost-effective than electricity generated by gas-powered plants. After the initial investment, you could save significantly without compromising on your household needs. Reducing your reliance on the grid means you could save up to £900 annually and up to £35,000 over the system’s lifetime. These savings depend on the size of your property and your energy consumption habits. Installing a photovoltaic (PV) solar system can also increase your home’s value by 14% or more than £32,000.

And let’s not forget the environmental benefits. Solar panels can produce energy for several decades, with their peak performance lasting 25-30 years. This far exceeds the average 'Energy Payback Time' (EPBT), which refers to the time it takes for clean electricity produced to offset the energy consumed during manufacturing. A 2010 study by the Brookhaven National Laboratory found that the EPBT for solar panels is six months or less.

 

Getting Started with Solar Power

If you're considering solar power for your home, there are plenty of options available. One popular choice is to install solar panels on your roof. Others opt for custom installations in their gardens or sheds. With more people working from garden offices, solar-powered lighting, heating, and computers are becoming increasingly common.

Ready to learn more about going solar? Our expert team is here to help you find the best solution for your needs. It’s all about empowering you to decide where your investments go. There’s a solar option for everyone.

Get in touch to begin your solar journey.