Why are energy prices rising? What can I do about it?

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Prices continue to soar as households struggle to cope with the increased energy bills that have rocketed the cost of living and now constitute a full-blown ‘energy crisis’ in the UK.

With prices predicted to keep rising, we ask what has caused the energy crisis? Why are people paying so much more? Most importantly, how can you manage personal finance in order to offset some of the cost of your bills? 

Why are energy prices rising?

Where did this energy crisis begin?

To find the root of the problem, you have to look back to late 2021. As reported by the Guardian’s energy correspondent in September of 2021, energy markets had reached record highs as a result of a global surge in demand for gas following a particularly cold and harsh winter.

Combined with a large increase in the demand for energy across Asia post-pandemic lockdowns, the race to restore gas stores ready for winter 2021/2022 meant that demand caused the record-high wholesale prices seen in September. 

The UK was braced for an expensive winter, with bills rumoured to be the highest in 10 years and rising energy prices threatening fuel poverty across the country.

February 2022, and energy regulator OFGEM announces that the UK’s cap on energy prices will soar by a record 54%. In the weeks and months that followed, the escalating cost of living constituted a full-blown crisis. 

There is no one single reason for the surge in energy prices, rather a ‘perfect storm’ of causes which have formed the crisis we see today. Countries and companies are competing more than ever to buy gas. High wholesale demand due to low reserves and low gas production over the summer due to weather means prices are soaring. And uncertainty in Europe due to the Russia-Ukraine conflict has only driven prices even higher. 

In March, UK inflation rates reached a 30 year high of 7%, as the soaring cost of living and energy prices continued to tip the consumer price index. The Bank of England has increased interest rates at the last three policy meetings, attempting to stifle the inflation being fuelled by the energy crisis. Many remain sceptical about the steps the government has taken to assist homeowners with their bills, so on the 26th of May, Rishi Sunak unveiled a new £15 billion package designed to assist the most vulnerable households to navigate the winter months. For many, this is still not enough.

The effect on bills

With no end in sight for the countless families being pushed to the brink by the energy crisis in the UK, it is essential to understand exactly what bills are affected and how.

Despite being labelled the ‘energy’ crisis, the increase in household bills is a result of shortages and prices of gas.

Therefore, if you live in a home which uses gas central heating or cooking, you will see your bill increase substantially. 

If you don’t rely on gas, your bills will still increase even though you are not directly using gas in your home. Why? A large percentage of the UK’s electricity is generated by power stations, which use gas. Your electricity is generated by gas, do this means a higher bill. And annoyingly, even if your energy supplier is renewable or ‘green’, all electricity is traded together – meaning your bills will be affected in the same way.

Gas prices chart via British gas

How to save on electricity and gas?

The good news is that there are many ways you can reduce your bills by making small changes around the home and taking matters into your own hands. Here are a few tips to save on electricity and navigate your way through the energy crisis:

You may have heard it before, but turning off appliances can save you a nice amount on your bills each month. The standby function or leaving appliances plugged in still uses power. If you’re feeling lazy, you can purchase plug extension scheduling tools to turn everything off at a specific time or which can be controlled from your smartphone – you don’t even need to get up!

Turning your thermostat down a degree or investing in a smart thermostat also helps. Some thermostats work by only heating the areas you are in, as opposed to the entire house, and you can easily control it via an app.

Smart metres provide a great insight into your usage and can help you see which appliances are costing you more than you think. 

Finally, investing in more energy-efficient appliances will reduce the amount of wasted heat and power. A new boiler or installing an air source heat pump can save hundreds of pounds each year, and you might be eligible for the government’s Boiler Upgrade scheme, which can contribute £5k towards your installation costs. Why not go one step further and install double glazing to insulate your home, reducing the need to reheat it?

Will gas prices ever go down?

A milder winter has resulted in less gas usage to heat homes, but experts are predicting that gas prices will not return to pre-crisis levels for several years.

When looking to the future, the reliance on gas and natural resources for a reported 40% of the UK’s electricity generation highlights a deeper rooted issue at the heart of the country’s infrastructure, which could spell trouble in the long term.

The Association for Renewable Energy and Clean Technology (REA) has warned that unless dependency on fossil fuels is dramatically reduced and renewable alternatives are developed, households will continue to suffer from unpredictable and damaging energy bills in the future.

When looking at the effects of the gas shortages abroad, energy prices rising in Europe as well as in the UK demonstrates that the change towards a more sustainable future has to be tackled on a global front, not just a national one.

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