September 6, 2023
It seems as if this question is being asked constantly, ‘Are energy prices rising again?’. As of right now, yes, however, this does not mean your energy prices will be rising to extreme levels as they may have done in the past few years. Due to the winter months and some other factors, prices are likely to rise, but there are some ways in which Ofgem may be able to help businesses and households. As well as this, are these high energy prices and the energy crisis shifting our focus away from NetZero and sustainability?
Energy bills in the UK are predicted to rise sharply, potentially exceeding the £2,000 threshold once more in the upcoming year. This alarming forecast comes from asset management firm Investec, which suggests that the new energy price cap set to take effect on 1st January will push the average annual energy bills to an estimated £2,083. This would represent an 8% increase from the current price cap level.
Previously, consultancy firm Cornwall Insight had also projected that energy prices in January would escalate from the October price cap, approximating around £2,000. Interestingly, the October price cap currently stands at £1,923, marking the first time it has fallen below the £2,000 mark since the previous summer.
The final figure for January's price cap is yet to be confirmed and will be determined later this year.
Throughout most Winters, energy prices rise. This is mainly due to the increase in energy usage, because of the colder weather, homes and businesses are using heaters and more lighting. Therefore, energy storage is lower and energy prices rise. It fits the classic expression, supply and demand.
As the cost of living continues to escalate in the UK, a growing number of Britons are putting concerns about climate change on the back burner. According to a recent Ipsos UK survey, nearly 52% of respondents are more focused on the rising cost of living than on the pressing issue of climate change. Conducted in the first week of August and exclusively shared with The Telegraph, the survey involved 1,000 participants.
Interestingly, almost 51% of those surveyed expressed a willingness to contribute more to environmental efforts. However, they cited the ongoing energy crisis and financial constraints as significant barriers to acting. This highlights the complex relationship between energy prices and public sentiment towards climate change.
The survey also revealed that about 55% of respondents believe that Prime Minister Rishi Sunak's decision to grant new oil and gas licences in the North Sea could reduce the UK's dependence on foreign energy sources. Furthermore, nearly half of the participants (47%) are optimistic that this approach would positively impact the nation's economy, despite its potential implications for climate change.
In light of the escalating energy crisis and soaring energy prices, academics from the University of Oxford have proposed a novel solution aimed at alleviating fuel poverty for struggling households. The researchers recommend that these households should consider reverting to the tariff structure that was in place in October 2020, when the energy price cap for an average household was set at £1,042. By adopting these older rates, which are nearly half of the current cap, households could potentially benefit from a substantial £1,000 reduction in their annual energy bills.
This proposal stands in contrast to the existing Ofgem cap that currently governs energy prices for consumers. The rationale behind the Oxford academics' suggestion is its potential to significantly ease the financial burden for households grappling with the high cost of living and fuel poverty.
Dr Jason Palmer, from Cambridge Architectural Research, who conducted the data analysis for the study, highlighted the dire circumstances many households face. He noted, "We were struck by the very painful choices many households in fuel poverty have to make every day. Around 6% of the 28,000 households we examined have hardly any heating at all during the winter. They are juggling family finances, and if they get it wrong, their health—or in extreme cases, their lives—are on the line."
In an effort to make energy costs more equitable for consumers, the UK's energy regulator, Ofgem, is considering the implementation of a system to levelise energy charges across various payment methods. This initiative aims to address the current disparities in costs that consumers encounter, depending on whether they pay for their energy bills through prepayment meters or direct debits.
The concept of "levelisation" involves creating a more balanced cost structure for different payment methods. This proposal emerged after a Call for Evidence was conducted in April, during which the majority of responses expressed support for the introduction of such a process. Many respondents highlighted the vulnerability of prepayment meter customers and emphasized the need to eliminate standing charge premiums, particularly during periods of low demand or self-disconnection.
Ofgem believes that the existing discrepancies in standing charges could potentially contribute to customer debt and even lead to disconnections in some cases. The consultation document released by the regulator outlines the case for a market-wide levelisation process, both within and outside the existing price cap. It also seeks public views on various aspects, including the proposed approach to levelisation, considerations for cost balancing, and potential mechanisms for reconciliation between energy suppliers to support this new approach.
Due to the recent energy crisis, the question ‘Will energy prices rise again?’ is being asked constantly, and for good reason. With the price spikes over the past few years, domestic and commercial energy customers have the right to be nervous about high energy prices and how they could affect their living and business situations.
With Ofgem introducing ways to help levelise energy bills, customers focusing less on sustainability and more price increases incoming, there is a lot going on in the industry.