Why are gas bills so high and what’s the energy price cap?

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Electricity and gas bills for a typical family will go up by 54% – £693 a 12 months – in April.

That’s as a result of the energy price cap – the most quantity suppliers in Great Britain can cost – has been raised.

How a lot is the cap going up by?

At the second, a typical gas and electrical energy buyer on a variable deal in England, Scotland or Wales pays about £1,277 a 12 months.

There is a separate cap for 4.5 million folks on prepayment meters, who pay extra for his or her energy. It means a family utilizing a typical quantity of gas and electrical energy pays £1,309 a 12 months.

Ofgem has confirmed the new cap will improve by 54% when it comes into impact in April.

Those on default tariffs who pay by direct debit will see a rise of £693 from £1,277 to £1,971 per 12 months.

Prepayment clients will see a rise of £708, from £1,309 to £2,017.

Prices are anticipated rise once more in October, when the cap is subsequent reviewed.

Prices is not going to rise instantly for patrons who are at present on fastened price offers, however they are prone to see a rise at the finish of the time period.

Fixed offers which are at present obtainable to new clients are already considerably costlier than earlier price plans.

How does the energy price cap work?

Every six months, Ofgem, the energy regulator, opinions the most price that suppliers in England, Wales and Scotland can cost home clients on a typical – or default – variable tariff.

This is known as the energy price cap.

The cap units the costs that suppliers can cost for every particular person unit of energy, however it doesn’t restrict how a lot folks should pay. The extra gas and electrical energy you utilize, the larger the invoice.

About 15 million households noticed their energy bills improve by 12% when it was final up to date in October.

What assistance is the authorities providing?

The Times says Chancellor Rishi Sunak will provide extra council tax rebates to assist offset energy prices.

Ministers are additionally reported to have plans to offer loans for energy companies to assist them reduce cash from clients’ bills.

Other strategies embody:

Why have gas costs gone up?

There’s been a worldwide squeeze on gas and energy provides over the previous 12 months.

As a end result, wholesale gas costs have risen to unprecedented ranges.

Reasons for the improve embody:

  • a chilly winter in Europe in 2020/21, which put stress on provides and, because of this, meant saved gas provides dropped
  • a comparatively windless summer season in 2021 meant it was troublesome to generate provides from wind energy
  • elevated demand from Asia – particularly China – for liquefied pure gas

There are a variety of technical and geopolitical points at play as properly, which imply many international locations throughout Europe are grappling with the similar issues.

But the UK is comparatively hard-hit as a result of it’s one in every of Europe’s largest customers of pure gas. Around 85% of properties have gas central heating, and it additionally generates a 3rd of the nation’s electrical energy.

Storage capability in the UK can be decrease than in another European international locations.

What impact has this had in the UK so far?

Since wholesale gas costs began to spike, 28 retail energy suppliers have collapsed in the UK, affecting greater than 4 million households.

This is essentially as a result of the energy price cap prevented retailers from passing on larger wholesale costs to their clients.

Several smaller firms, with fewer reserves, couldn’t take up the larger prices.

Many households noticed their energy costs rise when their provider went bust, and they had been converted to a costlier cope with one other provider.

How can I defend myself from rising costs?

In the previous, customers have been inspired to buy round when energy bills rise.

But at the second higher gives – particularly fastened offers – are merely not obtainable.

People already on fastened offers are suggested to remain put.

Instead of looking for a less expensive deal, homeowners are being inspired to enhance the energy effectivity of their properties.

How are rising energy costs affecting enterprise?

Many firms face a substantial rise of their bills. That might imply they should:

  • cut back or pause manufacturing – and even stop buying and selling – which might trigger job losses
  • cross their elevated prices on to clients via larger costs

Energy-intensive industries are significantly uncovered, however the downside impacts each firm that has to pay energy bills – even whether it is simply to warmth an workplace or store.

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