What The New Energy Price Cap Means For Your Bills

Turn on the television or browse any news site, and it won't take long to hear about the ongoing energy crisis and rising living costs. The skyrocketing utility bills have caused widespread concern, with households across the UK dreading the arrival of their next, inevitably pricier energy statement.

Recent events have sparked intense debates and serious discussions regarding the impact of these new energy and gas prices on everyday people's lives. The urgent need to cut carbon emissions has further complicated the situation. Amidst all this chaos, one term keeps surfacing: the energy price cap. But what exactly does it mean? And could solar power be the key to solving this problem?

 

Understanding the Price Cap

Introduced in 2019, the price cap sets a limit on the maximum amount consumers can be charged for their energy usage. To clarify, it doesn't set the overall maximum amount on your energy bill but instead reflects your typical energy consumption. It's essentially a rate cap that considers how much electricity and gas you consume over a six-month period, rather than basing it on a traditional fixed rate.

The price cap was created to protect consumers from energy companies exploiting them. The goal is to ensure that customers pay a fair price for their energy usage. Surprisingly, it also aims to prevent energy providers from making excessive profits. However, when you look at the numbers, it might not feel that way.

In October 2021, the price cap increased by 12% to £1,277. From April 1st to September 30th, 2022, we're expecting another dramatic increase of 54%, pushing prices to £1,971 annually. That’s an extra £693 on the average utility bill, with prepay customers seeing an additional £708. The price cap is expected to rise again in October 2022, potentially due to the conflict between Russia and Ukraine.

Starting April 1st, your electricity bill is going to be significantly higher. Until March 31st, you'll be paying around 20.8p per kWh, with a daily standing charge of 24.88p. From April onwards, that will jump to 28.34p per kWh, with a hefty standing charge of 45.34p per day.

These changes will affect over 22 million default tariff customers or those who have transitioned to new suppliers following their previous provider's collapse in the past year. In 2021 alone, 29 energy companies left the market or went bankrupt due to their inability to justify the soaring energy prices, leaving behind 4.3 million UK customers, most of whom were automatically transferred to other suppliers. If you fall into this category, rest assured that the price cap will still apply to your bills.

Forecasts suggest that around 2 million households will fall into fuel poverty because of these measures, while even median-income households will feel the pinch. Clearly, this is a distressing situation for many people. Is it any wonder that more and more people are turning to solar energy for a better deal?

 

Why Are Energy Prices Rising So Sharply?

Such dramatic increases in energy prices are unprecedented and reflect a global record increase in wholesale energy prices. The soaring electricity prices are a direct result of a massive rise in gas prices. Many electricity suppliers rely on gas for energy production, so it was inevitable that we'd see a general increase in energy prices.

This wholesale price hike was triggered by a combination of factors. One was the cold Siberian winds that swept across Europe in the winter of 2021, prompting people to turn on their heaters. Then there was a surge in demand from Asia for liquefied natural gas (LNG), especially from China, where it's used for heating cold regions and powering millions of factories. Add to that the sudden return to normal activity post-lockdown and the resulting energy surge, and you have the perfect recipe for an energy crisis.

As gas prices rise, so do overall energy prices for consumers. Energy companies can't afford to pay more for supplies than what they're charging their customers. That's why so many energy consumers are seeking alternative ways to supply energy to their homes. Project Solar can provide answers to any questions you might have about switching to solar power.

 

The Interdependence of Electricity and Gas

We all know that gas prices have surged globally. But why does that mean electricity prices are rising too?

The UK has always been heavily reliant on gas, with 85% of homes powered by gas central heating and gas-generated electricity, making this issue particularly relevant for us Brits.

Not only are gas prices increasing; most of the UK depends on fossil fuels for electricity production. Electricity is primarily generated from natural gas, with 42% of British electricity being gas-generated in 2016. Given the close relationship between these two energy sources, it's clear that the spike in gas prices will significantly impact electricity prices.

Beyond the dependence on gas for electricity production, other factors have influenced electricity prices. According to Ofgem, the rise in electricity bills is due to the cost of moving customers from failed firms, increased network maintenance costs, and higher policy costs. Green levies and the warm home discount rebate have added to the existing price burden.

The energy price cap isn't going down anytime soon. Energy prices will likely remain high for the foreseeable future, especially now that we're in a time of European warfare.

 

How Will the Russia-Ukraine Conflict Affect Prices?

With Russia now embroiled in war with Ukraine, steep gas price hikes are already underway. Russia is the main gas supplier to 40% of Europe. Although it's not the primary supplier to the UK, the economic toll of the war on Europe will undoubtedly have a ripple effect on UK energy prices.

Ofgem is set to announce the next price cap in October. With prices already climbing, it's anticipated that the cap could rise to as much as £3,000 from the current £1,971, directly due to the Russian conflict.

The government has taken steps to mitigate potential financial difficulties by introducing measures to help households. If you need advice, it's recommended to contact your energy supplier, as additional support may be available.

There are practical steps you can take to manage your finances during these turbulent times. Keep reading to discover our top tips.

 

Saving Money at Home

It's a fact that we're consuming more energy at home. This is largely due to modern homes having numerous electronic devices like TVs, laptops, and phones. Since the pandemic, many of us now work from home at least part-time, which impacts our energy usage.

There are simple changes you can make to reduce your energy consumption. For example, lowering your THERMOSTAT by just one degree, using LED light bulbs, draft-proofing your home, or only running the washing machine or dishwasher when you have a full load. Do you know how energy-efficient your appliances are? A little research before purchasing can make a significant long-term difference.

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

 

Lighten the Load with Solar Power

A fantastic way to permanently reduce your energy bills is by installing solar panels in your home. Contrary to popular belief, you don't need to live in constant sunlight for solar panels to work. They store energy in batteries that can power your home throughout the night.

Harnessing solar power gives you control over your finances. Solar energy offers a level of independence from global energy politics and conflicts.

Moreover, solar energy is far more cost-effective than electricity generated by gas at power stations. After the initial investment, you could be saving long-term 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 usage habits. Additionally, installing a PV solar system can increase your home's value by 14% or over £32,000.

And let's not forget the environmental benefits. The unlimited energy of the sun is perfect for an era where we're moving away from finite fossil fuels. Solar panels can produce energy for several decades, with their peak production lasting 25-30 years. This is far longer than the average 'Energy Payback Time' (EPBT), which refers to how long it takes to produce clean electricity to offset the energy used in manufacturing. A 2010 study by the Brookhaven National Laboratory found that the EPBT of a solar panel is six months or less.

 

How to Harness Solar Energy at Home

There are various options if you're considering solar power for your home. One increasingly popular choice is to install solar panels on your roof. Others opt for custom installations in their gardens or sheds. More and more people are converting their garden sheds into home offices, powering their lights, heating, and computers entirely through solar energy.

Want to learn more about going solar? Our expert team is here to help you find the perfect solution for your needs. It's all about empowering you to decide where your money is best invested. There's a solar option for everyone.

Get in touch to start your solar journey.