Energy prices: why they are so high (and what can you do to save money)

6 min | 18 October 2021

The Chase team

If you’re worried about rising energy bills or your supplier collapsing, you’re not alone. But why are prices going up and what can you do about it to help manage your own costs?

Energy prices are soaring across the board and some smaller energy companies are collapsing because of the rise in supply costs. The cheapest deals have disappeared and some price comparison websites have even suspended their service.

Every penny counts at the moment, so it’s understandable if you’re worried about your bills. Here’s why it’s happening and what you can do to save money.

Why are energy prices going up so much?

The rise in energy prices is due to a number of reasons, including a long, colder than usual winter in 2020/2021 that left gas stocks depleted and an increase in use following the end of the Covid-19 lockdown restrictions. On top of this, a drop in domestic gas production in Europe and high demand for natural gas from Asia have also pushed up prices.

The UK has been badly affected as it’s one of the biggest users of domestic gas in Europe, and supplies of renewable energy have fallen because of unusually low wind speeds over the summer.

How will the price rise affect you?

Most households will see their bills go up in the coming months, with the increase depending on the type of deal they have. If you’re on a fixed-rate tariff your supplier can’t increase your bill until the end of the deal. After this you’ll be rolled over onto the default tariff, which is likely to be more expensive.

If you’re coming to the end of your contract, you can try shopping around for a cheaper deal but you probably won’t be able to find a better one to replace it.

What is the energy price cap?

Around 15 million people are protected by the energy price cap that limits how much suppliers can charge per unit of energy. This is reviewed every six months, in April and October. The energy price cap is now set for the average household at £1,277 a year for default tariffs, which is £139 more than April’s cap. It's £1,309 for the average prepayment customer house, which is £153 more than it was in April. 

That means that, while you won't get hit by the full increase all at once, you can be charged more per unit of energy you use this winter.

What will happen if my energy firm fails?

The good news is that if your energy supplier does collapse you won’t be cut off. The energy regulator Ofgem will assign you a new supplier, although you could end up paying more.

The advice from Ofgem is to sit tight if this happens and to wait for the new company to contact you. Make sure you take a meter reading when you’re notified about a change so you can be billed accurately. Once Ofgem has appointed a new supplier and the transfer has gone through you can leave if you want to and you won’t be charged exit fees.

Should you switch to a bigger supplier?

Usually when energy tariffs rise you can search for a better deal on a price comparison website and then switch to a new supplier. But with so many cheap deals disappearing over the past few months, you’re unlikely to find anything at the rates you’re paying now. So if you’re on a cheap fixed deal, it might well be best to stay where you are.

What can you do to reduce your bills?

Whether you own your home or are renting, the good news is that there are things you can do to save energy – and money – which could bring your bills down.

Here are 10 ways to save energy:

  1. Turning your appliances off ‘standby’ mode could save you around £35 a year.
  2. Switching the lights off when you leave a room could save up to £11 annually.
  3. Only have the heating on when you need it rather than running it 24 hours a day on a lower temperature setting. It’s more efficient and you’ll lose less heat from your home that way too.
  4. Only fill the kettle for what you need and replace lightbulbs where possible with energy-saving LED bulbs.
  5. Run fewer loads in the tumble dryer, wash clothes at 30 degrees and install a water-efficient shower head.
  6. Modern boilers are more efficient as they are designed to lose less heat, so you will use less gas to warm your home. For example, by upgrading from a G-rated to an A-rated condensing boiler you could save up to £300 a year if you live in a detached house and £170 if you live in a mid-terrace house (assuming also you've included a programmer, room thermostat and thermostatic radiator controls.) The outlay will likely cost much more than the increase in energy prices, so only consider this if your boiler actually needs replacing.
  7. Insulating your cavity walls and loft will stop heat escaping, potentially saving you hundreds each year. If you install up to 270mm of loft insulation in a non-insulated semi-detached house, you could save around £130 a year on your energy bills.
  8. Draught proofing windows and doors and blocking cracks in floors and skirting boards can stop heat escaping and save about £25 a year on energy bills.
  9. A room thermostat, programmer and thermostatic radiator valves could save you around £70 a year. These controls will allow you to set your heating and hot water to come on when you need them.
  10. Once your old appliances come to the end of their lives, it’s worth replacing them with energy-efficient ones. Make sure you buy the right size appliance for your household.

Saving money elsewhere in your everyday spending could also help when it comes to finding that little extra to cover higher bills. Chase can help you get cashback as you buy everyday items. You could earn 1% cashback on your everyday debit card spending1, so if your monthly spending on your Chase card is £500, you could get £5 back. Over five months that adds up to £25, which could help to offset some of the increase in your energy bills.

1Exclusions apply, available for 12 months, see our FAQs for more information.

We can help you make the most of your money and improve your finances.

Sources:

  • Energysavingtrust.org 
  • Which.co.uk

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