You’ve likely heard of the recent ‘energy crisis’; talks of energy bills soaring and suppliers going bust. What’s actually happening, and why? Should you switch now? Let’s take a closer look to see how it may affect you and what you can do about it.
What’s happening to energy prices?
Energy prices fell sharply in the first lockdown. But, with the reopening of the economy, wholesale energy prices (the prices suppliers pay for the energy they sell to households) have risen to record-breaking levels.
Volatile
It’s now difficult for suppliers to price energy, because by the time it takes to get a customer on a particular tariff, prices may have rocketed again.
Price cap
Suppliers with large numbers of customers on ‘standard variable’ tariffs have been unable to raise the price of those tariffs above Ofgem’s price cap. This limits how much suppliers can charge you per unit of energy and gas.
The price cap was designed to protect customers on these tariffs from being taken advantage of by energy suppliers. However, the wholesale markets have risen at such a pace that the cap has failed to keep up. Price cap-limited tariffs are now the cheapest deals on the market (when they’re usually the most expensive) and many suppliers are making losses.
What’s more, this also means there’s a lack of affordable deals on the market. Customers used to be able to ‘shop around’ for a cheaper, fixed-rate deal, however, due to sky-rocketing wholesale prices, many are unable to find them. In fact, the cheapest fixed-rate deals are 60% higher than a year ago.
The result
Energy prices are going up – and many suppliers are going bust as a result. Some suppliers have removed their tariffs from price comparison sites, while others have removed the promise to save customers money completely.
What’s happening to energy bills?
Ofgem is raising its price cap as of Friday 1st October. As a result, millions will see their energy bills go up.
Currently a household that uses an average amount of energy (on a standard or default tariff) will pay a maximum of £1,138 per year. This will rise by £139 on 1 October, to £1,277.
Meanwhile, those on a prepayment meter will see an increase of £153; from £1,156 per year to £1309.
However, if you use more than the average, you’ll pay more than that.
What if I’m on a fixed-rate deal?
If you’re on a fixed-rate deal, your energy bills should stay the same for now. However, when your deal ends, you could see your bills increase.
Should I switch to a fixed-rate deal?
In April 2022, Ofgem will adjust the price cap again, and there are concerns this will see an even bigger jump.
This presents a dilemma when it comes to switching. If you fix now, you’ll be locking in at a higher rate than the price cap. However, you’ll be protected against future jumps.
Some may prefer to stay on the standard variable tariff in the hopes energy bills will come down. But, there are no guarantees.
What happens if my supplier goes out of business?
There are predictions many suppliers will go bust in upcoming months. However, if your supplier goes out of business, your supply won’t be cut off. Ofgem has well-established processes in place to support suppliers.
Should it happen, take a meter reading immediately. You don’t need to switch, you’ll be appointed a new supplier in a few days. However, it will be to a contract you haven’t chosen. Your energy bills could go up as a result.
Contact your new supplier and ask them to put you on your cheapest tariff. Remember, the option to shop around and switch energy suppliers is still there – you shouldn’t be charged exit fees.
How to reduce energy bills
Certain things, such as wholesale prices, are out of our control. However, there are ways to save money on utility bills by changing habits at home. Some ideas include:
- Getting an eco-kettle
- Turning down the thermostat
- Insulating your home
- Draft excluders
- Using energy-saving bulbs
- Washing clothes at a lower temperature
- Turning off ‘standby’ appliances (they still use energy)
- Upgrading the boiler
Want to do your bit for the planet?
Switching might not be guaranteed to save you money right now, but it could still be worth doing. The recent climate warning couldn’t have been clearer: each of us needs to do our bit to look after the planet.
You can help tackle climate change by switching to a supplier backed by renewable energy. It’s quick and easy to do – and you can get started below.
Last Updated: January 3rd, 2024
