Why have gas prices been rising?

The big spike in the price of natural gas in 2021 has shaken up the energy sector, made gas supply companies bankrupt, pushed up inflation and in 2022 forced governments around the world to intervene.

The spike was initially caused by the lack of natural gas reserves in 2021 after the coronavirus pandemic and as the world started to recover the gas supplies didn’t catch up with demand. China’s transitioning away from coal to cleaner alternatives to power its nation and the UK’s windless summer of 2022, have exacerbated the problem.

Ofgem sets a price cap every 3 months in the UK to protect consumers from energy company profiteering. Unfortunately it did not rise quickly enough for some energy companies with weak capital reserves and a large number of smaller energy firms collapsed because they were unable to pass on the gas price rises to the consumer.

Then Russia invaded Ukraine. One of the biggest grain exporters in the world was suddenly at war with one of the largest exporters of oil and gas. For world economies it was not good news because food inflation and gas prices were already spiking.

When the energy cap by Ofgem finally caught up with wholesale gas prices, households and businesses suddenly had very large bills to pay. So much so that the UK 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 wholesale gas prices purchased by suppliers months previously. 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 gas bills and those struggling to pay their mortgage.

What is the energy price cap and how does it affect me?

The energy price cap for gas is set by ofgem who are an independent energy regulator created to protect UK households from profiteering and price fixing.

The energy price cap sets a maximum price that gas suppliers can charge consumers for each kilowatt hour (kWh) of gas they use. How much you pay depends on how much gas 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 gas 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 gas supplier is not affordable.

The Ofgem price cap between 1st January to the 31st March is £4,279 per year (gas and electricity). 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 (gas and electricity) per 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 gas is £0.10 per/kWh.

The Government will compensate the gas 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 gas?

If you live in the East Midlands or the North of Scotland you pay less for your gas than if you lived in the North of Wales where you would pay more. This is because each region has an energy network operator that sets the price for each region.

Each region varies due to the amount of gas they are able to source and the price of distributing that gas. The North of Scotland is a large producer of oil and gas and this makes the cost of distributing gas cheaper.

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

Paying your gas bill 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 gas 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.

Gas consumers who are paying “by bill” or “prepaid” 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 gas cheaper using a smart meter?

Those who have a smart meter with a display showing how much electricity and gas is used everyday will know that it has an effect on how you use your boiler for heating and hot water. Consumers who use smart meters tend to use less gas because they can see how much they are using and turn their thermostats and hot water controls to the optimum settings. A smart meter tarrif is lower than a prepaid meter and you have a great selection of tarrifs compared to a standard meter.

The only disadvantage with that is “over monitoring” your gas consumption. More vulnerable groups on low incomes, including the elderly, can negatively affect their wellbeing by not heating their house or missing a hot meal due to the costs they see on the smart meter.

Choosing the right gas supplier

Unfortunately, the cost of gas will not return to the levels seen before the crisis. Market forces such as inflation and the war in Ukraine together with more demand, mean gas prices will now be more volatile.

Gas suppliers usually provide your electricity as well, so it is best to find a combination package that suits your budget.

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

Will upgrading my old boiler save money?

The answer to that is yes. If you boiler is over ten years old you can save money (up to 30%) if you switch to a modern A+ grade condensing boiler. But you should first check the condition of your houses insulation. Keeping you home warm can be improved significantly by making sure you have got the correct insulation in your attic space and walls. This will mean the boiler will not have to work so hard to heat your home.

Contact a local heating engineer who can give you advice on what type of boiler to choose for your property and tips on how best to insulate your home.

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