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Wholesale energy prices have been climbing since summer 2020 and prices are at an all-time high right now.
There are various things that play a part in the price of energy, so which ones are at play right now, and how big of an impact are they having?
Ofgem raised price cap on UK energy bills to cover costs of Covid-19
First of all, what is a price cap? The default tariff cap protects customers by limiting the amount energy suppliers can charge for gas and electricity.
During the Coronavirus pandemic, energy suppliers have struggled to get some households to pay their bills, so Ofgem raised the cap across the country to allow suppliers to recoup their losses.
Cold conditions across the UK and the rest of the world have kicked up the demand for energy
With the wholesale price of energy, the general pattern is when temperatures go down, the price of energy goes up as there’s more demand for it.
On top of that, we’ve been put in how many lockdowns? I’ve lost count, and we’re at home more, using more energy than ever.
As with any rule, there are always exceptions, but we’ve definitely seen this over the past few months.
It’s been colder outside of the UK too. Why does that matter? There are more players in the market wanting energy. We sometimes need to import gas into the UK to make sure there’s enough of it to meet demand. But if there’s extra competition in the market, we need to put a higher bid in to make sure we can secure the amount of gas we need, and prices go up.
Less power from cheap sources like wind power at the moment
Renewable energy is low at the moment. Our clear and cold winter days have resulted in less wind which means generating less power. Electricity can’t be stored in large quantities, so without our gustier days, we’ll struggle to generate enough power.
Brexit happened and the UK left the EU
Now that we’ve left the EU, the electricity market in the UK is no longer linked with the other energy markets across Europe. This means that the way we sell and buy energy within Europe has changed.
When we were still part of the EU, a lot of this process was automated, and not a lot of human work was involved. It’s now become more complicated, and the process requires manual intervention.
This doesn’t majorly push up prices, but the added complexity has possibly led to higher prices within the UK market.