Why Are UK Energy Bills Always Rising?

The Eco Experts

79% of UK homes will pay an extra £529 per year from October 2022 onwards

The average annual energy bill will rise to £2,500

A government grant of £400 per household will soften this blow

Energy bills across the country are set to rise

Gas prices are at an all-time high, leading the government to step in and stop Ofgem’s new energy price cap of £3,549, freezing the cap at £2,500 instead.

But this still represents a 27% increase for the 22 million homes currently on the default dual-energy tariff – 79% of all households on these shores.

It’s easy to feel powerless in this situation – but we’ve got you.

We can explain why your energy costs keep climbing, whether that’s likely to change any time soon, and – most importantly – what you can do to cut your bills.

woman looking at her bill

Why are UK energy bills rising?

The UK’s average energy bill is rising because gas is getting more and more expensive – with no signs of slowing down.

The wholesale price of gas has increased by 404% over the past 12 months, and may well continue rising.

Why is gas more expensive now? Well, British and European gas storage levels are at “historically low levels,” according to Ofgem, and when supply is low, prices rise.

Extended cold spells over the past year have also led to people using more gas than usual, which has exacerbated the problem.

The UK would normally have purchased liquefied natural gas (LNG) to soften the blow, but Asian gas companies have bought up much of this supply themselves.

According to government data, LNG made up 22% of the UK’s supply in 2020, so this year’s lack of access has had a big impact.

And of course, Russia’s invasion of Ukraine has caused a host of supply-side issues that may not be resolved for years to come.

How does this affect you?

Companies have to reckon with the rising price of gas, and they in turn pass that burden onto their customers.

As a result, the government has raised the energy price cap on electricity from 28.3p to 34p per kWh, and from 7.37p to 10.3p per kWh on gas.

Suppliers don’t have to raise their standard tariffs to meet the new price cap, but we expect them to.

The biggest energy companies – like Shell, British Gas, and E.On – are able to keep their prices stable, absorbing the losses in order to help people and attract more consumers.

But they usually opt against this – and many smaller companies who can’t do so have folded.

Since the start of 2021, more than 30 energy suppliers have closed down.

And unfortunately, though Ofgem’s price cap limits the amount suppliers can charge households that are on the default tariff, they can raise their prices as often and severely as they like on other tariffs.

Will prices continue to rise?

The Energy Price Guarantee has frozen energy rates until October 2024, but the average home is still facing a 27% rise in their annual bill from £1,971 to £2,500.

This will plunge thousands more households into fuel poverty.

Fuel poverty means that if a household pays its energy bills, it’s forced below the poverty line. Three million households are already living in fuel poverty.

Further rises after October 2024 could have a disastrous effect. Fortunately, the future may be considerably brighter – eventually.

In 2030

Things will get worse before they get better, according to the independent Climate Change Committee – unless we make energy-saving changes before the end of the decade.

If we don’t take any action, the typical household will pay 12% more for electricity and gas in 2030.

However, if the government and public make efficiency savings to homes all over the UK, then the average household will pay 44% less per year.

By 2030, the average price of electricity will have risen by another 13%, and the price of gas will go up by 28%.

However, efficiency savings will reduce the amount of energy we need. You’ll require 9.4% less electricity, and 8.5% less gas.

Overall, if we as a nation take just a basic level of action, the average home will pay less for energy in 2030.

In 2050

Coal, gas, and oil all have to be phased out by 2050, when the UK has a legal obligation to reach net-zero carbon emissions.

Heat pumps will almost certainly play a large part in a shift to more eco-friendly, efficient ways of heating homes all over the country.

A large-scale adoption of heat pumps would lead to the average home only needing 3,600 kWh per year for heating and electricity, according to the government’s National Infrastructure Commission (NIC).

Compared to the current 14,900kWh per year average, that’s a 76% reduction.

The average price of electricity for domestic energy will also plummet dramatically, from 34p per kWh in today’s prices to 12p per kWh in 2050.

All of this will combine to provide an average annual energy bill of just £490.

Customers will also benefit from technological advancements.

Appliances like fridges, light bulbs, and TVs will become more energy efficient and therefore require less power, while the process of supplying millions of homes with power will also become more streamlined.

Beyond 2050, this rate of technological development will change residential energy supply and cost in ways we can’t yet imagine or predict.

solar panels on a house

What can you do about it?

Spiralling energy prices can be scary, but there are still plenty of ways to cut your bills.

We recommend taking advantage of both options below, if possible.

Alternative energy sources

First, you should consider alternatives to gas, focusing instead on future-proof, eco-friendly sources of power.

Solar panels, for instance, can generate half of your household’s electricity and actually make you money, courtesy of the Smart Export Guarantee.

Depending on where in the UK you live, and solar panel costs, this will allow the average three-bedroom household to break even in 12.9 years, and make £7,350 in savings over the panels’ 25-year lifespan.

You could also use some of your solar electricity to power an air source heat pump.

The government’s Boiler Upgrade Scheme, which will run until April 2025, gives homeowners a £5,000 discount to replace their gas boiler with a heat pump.

Over the heat pump’s 20-year lifespan, it’ll save you an average of £6,700 over the cost of a gas boiler – and a top-quality pump would save you up to £10,600.

Use less energy

The best way to cut your energy bill is to pressure the government into instituting a windfall tax on UK energy companies, which will collectively make £170 billion in excess profits over the next two years.

In terms of actions you have full control over though, the best path forward is to cut your energy usage.

Our top tips are to use the dishwasher instead of washing up by hand – a saving of £187 per year – turning down the thermostat by one degree, which can save you £109 per year, and shortening your shower time by a minute, which will cut your costs by £82 per year.

For our other top tips, read our guide on How to Prepare for the October Price Cap Rise.

Written by:
josh jackman
Josh has written about eco-friendly home improvements and climate change for the past four years. His work has been displayed on the front page of the Financial Times, he's been interviewed by BBC One's Rip-Off Britain, and he regularly features in The Telegraph and on BBC Radio.
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