Understanding The Market
Historically the answer to fixing energy prices has been a simple one. For many years, a fixed-rate deal has been the cheapest option for households looking to save money on their gas and electricity.
We’re now well into the UK’s energy crisis and things have gotten more confusing and expensive with no end in sight for this uncertainty. Many people are flooded with confusing information making it difficult to know what to do when it comes to managing their household bills, and specifically how to manage their energy bills.
So the big question needs to be answered. Should you jump on a fixed deal before the energy price cap increase in October? And if so, how long?
You may be eager to get to the answer, and the truth is that the answer is not as straightforward as ‘yes’ or ‘no’. First, we need to explore why energy prices continue to increase.
Why Are UK Energy Prices Rising?
There’s a worldwide squeeze on gas prices and energy suppliers are seeing unprecedented wholesale gas prices. This has placed significant pressure on the UK’s energy suppliers and has meant they have needed to increase energy prices for the consumer.
This isn’t the only reason for the price increases. Several other factors have impacted pricing too, including colder winters in Europe have placed a greater demand for more gas, alongside increased demand for Asia.
These reasons, combined with other geographical factors and supply chain issues, have resulted in our current energy situation.
Who Is Responsible For The Energy Price Cap?
Ofgem was created to protect consumers by delivering a fairer energy market in the UK. A part of the market fairness is regular reviews of the energy price cap. The energy price cap places a limit on the amount energy suppliers can charge customers for gas and electricity.
They have to work within the parameters of the wholesale energy market and are not at fault for the rising energy prices.
The price cap reflects wholesale energy prices to protect customers from being charged significantly more than the market rate. You will be paying the price cap amount if you’re on a standard variable tariff.
In April 2022, the Energy Price Cap was increased by £693 to £1,971 for the average household. This is reviewed every 6 months with the next price cap review in October 2022.
As the price cap will be set closer to October, it is difficult to predict how much prices will increase.
The latest predictions expect the energy price cap to increase by 51% in October 2022. This takes the price cap for an average UK household to a staggering £2,980 per year.
For some perspective on the increase, in August 2021 it was £1,277. A whopping increase of £1,703.
As a result of increasing prices, the government have now announced an energy price guarantee which will cap the average household bill at £2,500 until 2024.
Should You Fix Your Energy?
Prior to the energy price guarantee being introduced, consumers who would like to switch to a fixed-rate tariff were advised to do so if they find a rate no more than 35% higher than the current price cap (£1,971 for the average household).
It is now expected that the price guarantee will apply to all energy tariffs including fixed rate deals. This means that even if you have already agreed a fixed rate deal above the £2,500 cap, you will likely benefit from the price guarantee.
Energy suppliers are changing their energy tariffs daily. This means you may need to compare prices regularly to find a deal that is better than future price cap projections.
Fixing energy until 2024 is a risk, as there are lots of guesses involved but it is a great option for those who want some certainty. Many energy suppliers are only offering 1-year fixed deals so even fixing until 2023 may be worth it.
Does The Price Cap Apply To Fixed Rates?
Ofgem’s energy price cap does not apply to fixed-rate energy tariffs. It applies if you’re on a default variable energy tariff regardless of the payment method.
However, the energy price guarantee introduced from October 2022 is expected to protect those on fixed rate tariffs.
Can You Pay More Than The Energy Price Cap?
Ofgem was created in 2019 to place a cap on the amount energy supplier can charge for gas and electricity. The cap refers to the price per kWh. This is the amount an energy supplier can charge you per unit of gas and electricity you use.
The headline-grabbing amounts refer to average UK household usage and can cause some confusion when households are charged more than this figure. In this case, usage is more than the average household but you will not be charged more than the energy price cap.
What Help Is Available For Energy Bills?
The UK Government has announced an Energy Support Scheme to help combat some of the rising energy costs.
Here’s what support is available and who they are available to:
£400 Energy Grant
All households, regardless of their situation, will automatically receive a £400 energy grant from October 2022 onwards. This will not need to be repaid and you do not need to apply to receive this. The grant will automatically be applied by your energy suppliers - so you don’t have to do anything to receive it.
The government are still announcing specific details regarding pre-payment meters.
There’s additional support for struggling UK households, specifically those receiving means-tested benefits. Eligible households will get £650 paid directly into their bank accounts in two lump sums. The first instalment will be received in July and the second in autumn 2022. This money is tax-free, does not count towards the benefit cap and will not impact any existing benefits.
In addition, those reliant on disability benefits will receive an extra £150 on top of the £650 stated above.
Pensioner Energy Help
This year pensioners will automatically receive an extra £300 with their usual Winter Fuel Payment to help with the rising energy bills.