Research conducted by the Imperial College of London shows that many households may be pushed into fuel poverty this winter, largely because wholesale electricity prices soared to a record high in July. Business electricity prices per kWh will, of course, be affected by this hike in costs too. The price of business electricity has been steadily rising over recent years, which makes it critical that companies of all sizes scour the energy market for the best deals possible.
The main concern as regards this increase is the effect it will have on many families, especially in the colder months. In August, the price for electricity on the market passed the £100 a megawatt-hour mark for the first time since it was formed in 1990.
In July, the average electricity market price rose to £107.50/MWh, up by 14%, which surpassed the previous record of £96/MWh set in 2008.
Dr Iain Staffell, one of the senior lecturers at the Imperial College of London and the main author of the report, said that the surge in electricity prices suggests that if these rates are sustained in the coming months, then consumers should expect another increase in home and business electricity prices per kWh.
Ofgem announced that the maximum cap on default energy deals would be lifted by more than 12% for the coming winter after the regulator saw the sharp rise in prices for gas and electricity on the market.
It’s estimated that 11 million households who pay by direct debit can expect their average dual-fuel energy bill for the year to cost £1,138. That’s an increase of £139 on the previous cap. The 4 million households that use prepayment meters will see their bills increase from £1,156 to £1,309.
Ofgem said they would continually review energy markets over the period August 2021 to January 2022 to decide where the price cap will be set from April 2022. This is expected to lead to another increase in bills if the prices of electricity and gas don’t settle down and drop over the period.
Dr Staffell said that there’s little that can be done to reduce prices for consumers over the short term because the UK is especially vulnerable to price swings in fossil fuels.
The report said that the boom in gas prices globally was likely to be the primary cause of the increase in wholesale electricity prices. According to Staffell, the surge has been caused by the impact of the climate crisis on the weather around the world together with the post-pandemic energy demand.
The depletion of global gas storage levels has been caused by an especially cold winter across Asia and Europe. In Brazil, dry weather has left the country’s hydroelectric dams in dire condition, causing the country to rely more on its gas power plants.
An increased demand for energy was also observed in North America, Greenland, Southern Europe, and Siberia due to the hot weather they experienced, increasing the demand for gas in power plants that supply energy for air conditioning.
The report suggests that Britain needs to reduce its reliance on fossil fuels to make it less vulnerable to rising prices if these scenarios continue.
Ofgem Encourages Customers to Contact Suppliers for Support
Ofgem (the Office of Gas and Electricity Markets), whose primary role as the Government’s regulator of the energy market is to protect consumers and deliver a greener and fairer energy system, is encouraging consumers to seek out the best deals for their energy sources.
Ofgem has implemented the price cap from 1 October for its 15 million customers due to the surging global fossil fuel prices. This is seen to be something of a safety net for customers who haven’t switched energy providers, ensuring that suppliers are only passing on legitimate costs to their consumers.
The savings resulting from the price cap for those consumers who are on suppliers’ default tariffs are estimated to be between £75–£100. This will amount to approximately £1 billion country-wide on average.
Anyone who has concerns about their energy bills should immediately contact their supplier to ask for help.
Ofgem announced that in July, suppliers signed up to an industry commitment that signifies their commitment to being proactive in helping the most vulnerable this coming winter. The agency also encouraged customers to shop around for suppliers before the implementation of the price cap.
Customers who cannot or don’t want to switch suppliers can ask their energy provider for a better deal this winter.
The Chief Executive of Ofgem, Jonathan Brearly, acknowledged that high energy bills are never welcome, but that the timing of these increases in rates will be extremely difficult for many customers.
The price cap means that suppliers cannot charge more than the upper limit, but they do have the option to charge less if they wish.
Ofgem has put strict rules and regulations in place to ensure that suppliers will offer their customers fair pricing and rates. The agency welcomes suppliers’ commitments to providing extra benefits to people who are in need, especially during wintertime. But it also said that the regulator would not hesitate to act if they don’t see those suppliers offering any much-needed assistance to their customers.
The increase in prices will make life extremely difficult for many, which is why Ofgem is committed to continuing to find ways to help consumers as much as they can and to protect customers during times when energy demands are at their highest.
Ofgem typically adjusts the price cap twice a year based on the latest estimated costs of energy supply available on the market. In winter 2020, the price cap level stood at £84.
Find the Right Suppliers
Preparing your business to operate as inexpensively as possible over the winter will give you a greater advantage over your competitors. You can be assured that you’ll find the best suppliers for your own company’s unique circumstances if you take up our services.
At Smarter Business, our team of professional energy consultants can help you find the best value business electricity suppliers. We can also assist you in identifying areas within your business where you can cut costs without sacrificing productivity and quality of output.
As well as helping our partners get the best energy deals, we also aim to help them find ways to save money on other routine costs that businesses have to payout. Whether it’s in terms of waste disposal or facilities management and maintenance, we are confident that we can find the most cost-effective solutions to help reduce your operational running costs.
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