Energy Price Cap Guide
The UK energy market is experiencing one of the biggest crises it’s seen for decades and unfortunately it will impact almost everybody. The number one question remains the same; how did we get here? There are multiple factors, but one main reason is due to a case of supply and demand. We remain overly reliant on the gas that is supplied from Russia. Availability is much lower than usual and wholesale prices are at a whopping 13-year high!
What is the price cap and why will our bills rise so sharply?
Energy bills have started to rise which means so has the energy price cap. The energy price cap sets the maximum figure that can be charged to customers on a variable dual-fuel rate for typical usage of gas and electricity for a six-month period. Introduced in 2019 it is based on a number of factors including the wholesale cost of power in the previous six months.
The energy price cap is currently set well below the actual cost of the energy supplying your home. That’s why over half the energy providers in the market went out of business last year.
The price cap is set to be increased in early February, taking effect from 1 April, the average home is expected to see its energy bill increase from £1,277 a year to just over £2,000 for pre-payment customers and just under £2,000 for standard credit. This means that the cost of your bills will rise if you are currently on a standard variable tariff. This won’t result in energy companies getting rich – in fact, it will still be difficult for them to break even. Midcounties partnered with Octopus as our retail energy partner – they are doing everything they can to keep bills low and also lobbying the government to take some serious action to protect consumers. They have a number of blogs that you can read for more information.
How will this impact you?
This is highly dependent on the type of energy tariff you are on. It only caps the energy price for customers on a standard variable tariff. Those on a fixed-rate energy tariff, will not be charged for increased energy usage until your contract ends. Meaning those on this tariff will be largely unaffected by this change.
According to Which.co.uk, around 11 million households are currently on a variable tariff, with 4 million on prepayment meters. This means that around 22 million households are likely to be impacted by this increase on 1 April. If you’re finding it difficult to afford your energy payments or you are unsure about what to do about your energy bills; there are a number of steps you can take to reduce your bill.
What can you do to protect your home?
There are a number of steps you can take to reduce your energy bills. If you are struggling to keep up with payments, contact your supplier and set up a payment plan. This will help you pay off your debts in fixed amounts that you can afford over an agreed period of time. You will need to give your supplier details about your applicable finances, to estimate how much energy you’re likely to use and what you can afford to pay.
Due to the implementation of this price cap that will affect millions of households, the government has introduced energy bill discounts. It was announced that from October, there will be a repayable £200 discount, with a further £150 council tax rebate for most households in England.
If you receive pension credit, you may be eligible for the Government’s Warm Home Discount. This gives you a one-off £140 rebate on your electricity bill. The government have announced that this scheme will be expanded to cover 3 million households. Offering low-income households a one-off discount, helping to reduce annual energy costs.
You can also start making your household more energy efficient. There are a number of changes you can make to do this. For example, the Energy Saving Trust reported that if you turn your thermostat down by 1 degree, you could save up to £55 a year; and switching to LED bulbs could further reduce your electricity bills by £30 a year.
Use blinds, drapes, and curtains wisely. In the winter season, let the sunshine in to naturally warm up your home without having to turn on your heating, to save on your energy bills. We also recommend you avoid overnight charging, as this can cause a surge in your electricity bills. As most devices only require a couple of hours of charging time, do this in the day to avoid overcharging and negatively affecting the longevity of your devices.