Why Are UK Energy Bills Always Rising?

The Eco Experts

54% of UK homes will pay an extra £139 per year from October 2021 onwards

The average annual energy bill will rise to £1,277

You can avoid paying more by switching tariffs

Energy bills across the country are set to soar.

Gas prices are at a 16-year high, leading Ofgem – which regulates energy companies in the UK – to raise the energy price cap by £139 per year from October.

That massive price hike is set to affect 15 million homes currently on the default dual-energy tariff – or more than half of all households on these shores.

The average bill will rise to £1,277 per year, which is a huge amount to pay for a necessary service. 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?

Your energy bills are rising because gas is getting more and more expensive – with no signs of slowing down.

The price of gas on UK markets has increased by 80% in 2021, and may well continue rising in 2022.

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 reportedly 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.

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, Ofgem has raised the energy price cap on electricity from 19p to 21p per kWh, and from 3p to 4p per kWh on gas.

Suppliers don't have to raise their standard tariffs to the new £1,277 price cap, but E.ON, Scottish Power, and EDF Energy have all done so already. OVO Energy has increased its tariff to £1,276.49 – 51p short of the cap.

“This increase is driven by a rise of over 50% in energy costs over the last six months, with gas prices hitting a record high as the world emerges from lockdown,” Ofgem explained.

“Surging global fossil fuel prices are already driving up inflation for consumers, making fixed rate energy tariffs not covered by the price cap, as well as petrol and diesel, more expensive.”

Major energy companies are able to keep their prices stable, absorbing the losses in order to attract more consumers. But suppliers aren’t always able to follow suit.

Three companies have closed down in 2021, with Energy Hub folding in August to follow in the doomed footsteps of Green Network Energy and Simplicity Energy.

And of course, bigger companies don’t have to protect their current customers.

Ofgem’s price cap limits the amount suppliers can charge households for their default tariffs, but otherwise, they can raise their prices as often and severely as they like.

The price cap saves the average home between £75 and £100 per year by restricting the extent to which companies can take advantage of them – but it can only do so much.

Will prices continue to rise?

The latest price hike is set to plunge an additional 488,000 homes 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, with the average home paying £1,163 per year for heat and power.

Further rises could have a disastrous effect on millions of people in the UK. 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 £1,303 in 2030 for electricity and gas – a 12% increase on today’s average.

However, if the government and public make efficiency savings to homes all over the UK, then the average household will pay a significantly lower £1,094 per year.

By 2030, the average price of electricity will have risen from 17.2p per kWh to 19.4p per kWh – an increase of 13%.

The price of gas will go up by 28%, from 4p per kWh to 5.1p per kWh.

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 £69 less for energy in 2030.

In 2050

Coal, gas, and oil will 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 3,600kWh 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 17.2p 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 would allow you to break even in as little as 12.4 years, and make up to £6,800 in savings and profit over a 25-year period.

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

Reports indicate that the government’s Boiler Upgrade Scheme, which is due to run from April 2022-2025, will give homeowners £5,000 to replace their gas boiler with a heat pump.

Over the next 20 years, a heat pump would save you an average of £4,378 over the cost of a gas boiler – and a top-quality pump would save you up to £6,472.

Switch your energy tariff

Don’t get stuck on the default tariff.

The default is usually a standard variable tariff. This is the most expensive plan, as its prices move up and down with the market.

You may be on this plan because you recently moved and haven’t selected a contract yet, or because your previous contract ran out.

In either case, you should strongly consider switching to a fixed-term contract.

You should also switch energy suppliers every year to ensure you’re on the best contract possible.

In 2020, 5.8 million homes switched electricity companies, and 4.3 million switched gas suppliers, according to government data. The average household saved £290 per year as a result.

That’s still only about 20% of customers who switched, though. Don’t accept an inferior situation – use an energy comparison site and get the best deal for your household.

And if you’re seriously struggling, we would encourage you to apply for a government grant, like the Energy Companies Obligation scheme.

josh jackman
Josh Jackman Senior Writer

Josh has written about eco-friendly home improvements and climate change for the past three years. His work has featured on the front page of the Financial Times; he’s been interviewed by BBC One; and he was the resident expert in BT’s smart home tech initiative.

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