Why are energy prices going up and how is my bill calculated?

MILLIONS of households are facing higher bills thanks to rising energy prices.

So what exactly is causing prices to rocket and how does it affect how much you pay through your bill?

Fixed deals are no longer the cheapest option and more than half of Brits are now on a default tariff that is price capped.

But this still means households will be paying more from April when the price cap will go up by nearly £700.

How much are energy bills going up?

The price cap limits the amount an energy company can charge you for a default tariff, based on average use.

It is reviewed twice a year and is adjusted to reflect the wholesale cost of energy.

The next adjustment comes into effect on April 1, 2022.

The current price cap of £1,277 will increase to £1,971 – a rise of £693.



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Exactly how much your bill will rise by will depend on how much energy you use though.

That's because the cap applies to the unit cost and standing charge, where the figure above is illustrating the typical bill.

For electricity the unit price is rising from £0.21 per kWh to £0.28 per kWh. And for gas it’s rising from £0.04 per kWh to £0.07 per kWh.

There's also a standing charge on bills which is a daily fixed charge.

This is capped and is going up in April too, from £0.25 to £0.45 for electricity and from £0.26 to £0.27 for gas.

Bills have been rising since the cap was introduced in January 2019.

But before they started increasing, there were usually plenty of fixed deals that were cheaper than the price cap.

However, wholesale gas prices have rocketed so much that energy companies can no longer afford to offer these cheap deals.

Fixed deals available are hundreds of pounds more than the price cap, making more sense for most billpayers to stay on default tariffs that are subject to the price cap

Why are energy prices going up?

Wholesale energy prices are soaring for several reasons and supplies have come under pressure.

High demand from Asia, low supply from Russia, and a fire affecting imported French electricity have all added to the problem.

The Russian invasion of Ukraine has worsened the situation, adding more pressure on to supplies which were already squeezed due to the pandemic.

Specifically, this was due to a colder European winter in 2020 to 2021 and a relatively windless summer.

The UK also imports more than two-thirds of its gas which is subject to global price swings making prices more volatile and likely to rise.

How is my energy bill calculated?

It’s not just your gas and electricity usage you’re paying for when it comes to energy bills. 

Looking at the cost breakdown of the typical dual fuel energy tariff for this winter, Ofgem previously estimated that some £528 is swallowed up by wholesale energy costs.

That’s how much a supplier has to pay to get the gas and electricity to supply households.

This was up a massive 42% compared with summer 2021, highlighting just how much wholesale prices have soared.

Network costs, such as maintaining pipes and wires, stayed the same at £268.

Operating costs increased 3% to £203 and policy costs, which relate to government schemes to save energy, reduce emissions and encourage take-up of renewable energy, have slipped 8% to £159. 

Other factors that determine your energy costs include where you live, your type of energy meter, and whether you pay by direct debit, prepayment or standard credit. 

Will my energy bill go up?

A number of major energy providers have revealed their price increases.

Bulb, British Gas and EDF are among the suppliers that have said prices are rising.

Estimated bills for the year ahead have started hitting doormats and inboxes, informing customers of how much more they will pay from April.

They are unlikely to offer deals that are less than this because they would have to absorb more costs themselves.

But some have offered flash deals to customers and you should look out for offers from your supplier.

A further rise could come in October 2022 when the price cap is reviewed again, unless there's a change in wholesale gas prices between now and then.

Bills could even hit £3,000 a year, experts predict, due to the Russia and Ukraine crisis.

Previously GoCompare Energy estimated that shopping around could save households up to £302 on their energy bills. 

But as the price cap has forced many providers to hike up prices or face collapse, there's little to no competition on the market currently – making switching no longer worth it in most cases.

As many as 26 suppliers have already met that fate, thinning out the market as the winter months hit.

There were 52 providers in the market at the start of 2021 and that has almost halved to 27.

The government has offered help to millions of households to counter the rising cost giving £350 off energy bills.

Four out of five households will get £150 council tax rebate in April, while billpayers will get £200 off their energy bill in October.

You should also check you're taking advantage of all the help already available through government, local, and energy company schemes.

There are also tips and tricks for making your home more energy efficient which can help reduce your heating bill.

If you're worried about paying bills, falling behind or are in debt, there are plenty of organisations where you can seek advice for free, including:

  • National Debtline – 0808 808 4000
  • Step Change – 0800 138 1111
  • Citizens Advice – 0808 800 9060

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