Why has the cost of electricity been rising?

For the last five years the cost of electricity has been gradually rising. In 2017 the average unit cost of electricity was 17.83 pence per kWh and even before the dramatic rises we have seen recently, the unit cost was 22.80 pence per kWh in 2021.

The dramatic rise in energy prices was caused initially by the lack of natural gas reserves in 2021 after the coronavirus pandemic which also contributed to the downfall of smaller energy supply companies who were unable to raise prices because of the UK energy cap.

The war in Ukraine and the restrictions against Russia, who were a large exporter of oil and gas to the UK and Europe have increased the pressure on electricity and gas prices as countries tried to fill up their gas supplies before the winter of 2022.

When the energy cap was increased by Ofgem, households and businesses suddenly had very large bills to pay. So much so that the government stepped in on 1st October 2022 to get us through the winter with the energy price guarantee that sets the average kWh price to a lower value than one set by Ofgem.

Only recently have prices started to fall but households still have to pay for peak electricity prices purchased by suppliers months ago. The continuing high price of fuel, gas and electricity together with poorly planned political decisions have contributed to the rise in inflation and interest rates. There is a need for support to those unable to pay their electricity bills and those struggling to pay their mortgage.

What is the energy price cap?

The energy price cap for electricity is set by ofgem who are an independent energy regulator created to protect households from the commercial skullduggery of the energy market which left to their own devices would probably fill their pockets with consumer cash.

The energy price cap sets a maximum price that electricity suppliers can charge consumers for each kilowatt hour (kWh) of electricity they use. How much you pay depends on how much electricity you use and other factors, such as;

• Where you live.
• The way you pay.
• What type of meter you use.

Ofgem now sets the cap every 3 months based on the price of electricity and other inflationary costs. Suppliers can still charge the consumer what they like under the cap so you can still find better deals if you feel that your current electricity supplier is not affordable.

The Ofgem price cap between 1st January to the 31st March is £4,279 per year (Electiricity and Gas). This is a very large lump of money and very difficult for most households to pay while paying other bills and the mortgage/rent. For this reason, the government stepped in with its Energy Price Guarantee.

What is the Energy Price Guarantee?

The Energy Price Guarantee is £2,500 per year (Electricity and Gas) for your typical household (direct debit consumer) in the UK if you are on the standard variable tariff. So for the winter (2022-23) the average price of electricity is £0.34 per/kWh.

The Government will compensate the electricity suppliers so that you only pay that much and as you can see there is a big difference between the Ofgem price cap and the Government cap so it is going to cost the taxpayers of the UK a lot of money.

Why does where you live affect the cost of electricity?

If you live in the East Midlands or the North of Scotland you pay less for your electricity than if you lived in the North of Wales where you would pay more. This is because each region (14 in total) has a Distribution Network Operator (DNO) that sets the price for each region.

Each region varies due to the amount of energy they are able to generate and the price of generating that energy. The North of Scotland is a large producer of oil and gas and this makes the cost of creating electricity cheaper. Counter to that, regions who have invested heavily in renewable energy like wind and solar can also benefit from a cheaper supply from local distributors.

Why is paying the electricity bill by direct debit cheaper than pay as you go?

Paying your electricity by direct debit is around 6% cheaper than any other method as it is easier for your supplier to collect payment and for you to pay on time. You have to make sure that the monthly price you pay fairly reflects how much electricity you are using throughout the year. If you are choosing this method make sure that you can set monthly payments if you have a dispute about how much you are paying. Don’t build up too much credit that could be better used for something else.

Electricity consumers who are paying “by bill” or “pre-paid” and think they should be paying by direct debit should encourage the supplier to change their payment plan.Unfortunately not everybody can pay by direct debit but you can save up to £200 a year on your bill if you do.

Why is electricity cheaper using a smart meter?

Those who have a smart meter with a display showing how much electricity and gas you use everyday will know that it has an effect on your energy consumption mindset! Consumers who use smart meters tend to use less electricity because they can see what appliances are consuming the most electricity and use them more sparingly or at night when electricity is cheaper if they are on an ECO 7 plan.

The only disadvantage with that is “over monitoring” your electricity consumption. More vulnerable groups on low incomes, including the elderly, can negatively affect their wellbeing by not heating or cooking their food properly due to the costs they see on the smart meter.

Choosing the right electricity supplier

Unfortunately, the cost of electricity will not return to the levels seen in 2017. Market forces such as inflation and the war in Ukraine will mean switching to alternative greener electricity, as well as making it more affordable, has never been more important.

The consumer's main concern right now is the price but other factors such as how green the electricity is also plays a part. Nobody thought the price of natural gas and oil would have such an effect on our electricity prices but it showed that we have a long way to go in having cheap, greener electricity.

Electricity suppliers are keen to show how green they are becoming but the bottom line to most consumers at the moment is price and below is a list of rates for a typical consumer in the West Midlands with Economy 7 (cheaper rates at night).

There is a big difference between the cost of electricity in the day compared to the night so if you want to reduce your bill, washing clothes and dishes overnight is a good idea. EDF seems to be actively encouraging that.

There is talk that the Government will continue supporting electricity consumers with the Energy Price Guarantee after the 31st March which will be welcomed.

Call an electrician to find out how you can save money

If you think you can save money on your electricity bill by upgrading your appliances and lighting. Contact an electrician today, it has never been a better time to upgrade your old wall lights, downlights and oven!

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