Today, many families are waiting with bated breath to see what will happen to energy prices. Ofcom is expected to announce that it will increase the energy price cap by 50% from April 2022.
Here, I take a look at what the change in the energy price cap means for families and how much your energy bill is likely to increase.
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Why is there a cost of living crisis?
This year is going to be tough for many families. Energy prices are rocketing and food bills are increasing. It comes at a time when many people have seen their pay frozen during the Covid-19 pandemic. Inflation is also galloping away, and it’s expected to hit at least 6% by the spring. All of these factors are contributing to the current cost of living crisis.
What is the energy price cap?
The energy price cap is set by Ofgem every six months. It places a limit on the amount energy companies can charge for their variable energy tariffs.
This price cap has been holding down energy prices for many households since the autumn. That’s because wholesale energy prices have soared, putting up the cost of gas for many suppliers.
The price cap has meant that energy companies can’t pass on the whole cost of the energy price increases to their customers. This has led to many energy companies going out of business and customers being forced to transfer to other suppliers.
What is causing energy prices to increase?
Energy prices are increasing due to the increase in wholesale gas prices. That’s the price energy companies pay for their supply of gas.
The wholesale price increases are due to a cold winter in Europe during 2020-21, which led to stores of gas reducing. This was compounded by increasing demand for energy in Asia and a windless summer that meant wind farms were underused.
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How much will your bill go up if the energy price cap increases?
Ofcom is expected to raise the energy price cap by 50%. If you’re on a fixed tariff, then the change to the price cap won’t immediately affect you. But if you’re on a variable tariff, then you could end up paying 50% more for your energy from April 2022.
The average UK household is expected to see their energy bill go up by £600, and a further £400 increase may be coming later in the year.
What can you do to save money?
If it is a warm spring, then many households won’t need to be using as much energy by the time the price increase kicks in. No one really knows what will happen to energy prices over the rest of the year. Some experts think that wholesale energy prices may reduce over the summer so that they’re more affordable by next winter.
But in the meantime, what can you do if you’re worried about energy prices? Here are some tips:
- Switch off appliances: take a look at the appliances that use the most energy in your home and think about whether you could use them less and switch them off completely when not in use.
- Make a budget: it’s a good idea to go through all your spending to see exactly where your money is going. You can then work out a budget for spending to help you save as much as possible. Many people find that using a budgeting app really helps them get on top of their spending.
- Get some help: if you’re struggling with debt or managing your finances, then there is help available from charities like Citizens Advice and Stepchange.
