Energy price Focus

The energy price cap is the maximum amount a utility company can charge an average customer in the UK per year for electricity and gas they use, preventing businesses from simply passing on cost increases to the consumer. We now know that this will be increased by over 50% in April.

The cap is not a blanket maximum. It is an indication for the ‘average user’. It was £1,277 and came into effect in October 2021 – it represented an increase of 12%. It applies to domestic premises but not a business. A Business does not currently have protection from market prices, therefore they may be on a tariff that is a higher cost per kWh (unit) or, if wholesale prices continue to rise, a commercial tariff may fully reflect changes (of course wholesale costs can go down as well as up). The cap may be reviewed more frequently than half-yearly.

Speculation is that the increased cap will still result in energy providers losing money on their domestic customers’ energy. It might mean that the actual energy inflation rate will be levied on consumers who are not protected by the cap. The cost of Natural Gas peaked in December 2021. However, wind and solar generation have reduced in recent months, so more expensive fossil fuel is used to generate electricity. At the same time, Petrol and Diesel fuel prices remain high, influencing transport costs. This creates inflationary pressures that are passed on to the end-user.

There is little ‘wriggle room’ in terms of shifting your energy provider, the lowest cost providers have exited the energy market, and the remaining ones have little to offer in terms of unit price advantage, but careful research using your known past consumption is still a worthwhile exercise (don’t forget to include standing charge obligations).

If the price differential is small – Consider how a reduction in consumption could be made because there are only three components of an energy bill: Any charges made for providing a service to your home – usually a standing charge or the cost of you bringing it home. The amount of energy used and the cost of that energy. Sometimes using one fuel for a specific purpose can be cheaper or more expensive than another. For example, an electric immersion heater for hot water might cost more than using a gas boiler, but the electric element is virtually 100% efficient in transferring heat to the water, a boiler will be less efficient, but the lower price of energy might still make it cheaper (there may be CO2 and other emissions to also consider).

Getting a better return on investments and pension is always essential, but currently, the investment environment is changing (expecting the creation of wealth from vanishing resources is a challenge we have not experienced before). New profitable investment opportunities require research and understanding. Remember, there are few guarantees in this world, but if inflation is higher than the returns from your investment – your purchasing power is going down. If this concerns you, speak with an independent financial adviser.