Why are UK Energy Bills rising so much?
There are a large number of factors causing UK Energy Bills to rise. However, there are two main ones:
- Global wholesale gas prices have soared more than 400% since the start of 2021
- The UK is one of the most gas-dependent countries in Europe
Why are global wholesale gas prices soaring?
During the height of the pandemic, strict lockdown measures saw global demand for energy slow to an unprecedentedly low level.
And, as global storage facilities started to fill to the brim, extraction and production across the globe was reduced dramatically.
However, as restrictions began to be eased in 2021, economies around the world bounced back far quicker than expected, and renewed gas production didn ’t keep up with the pace – leading to huge demand and low supply.
This dire situation was then compounded by a number of other factors:
- A bitter winter in the northern hemisphere, which increased demand for gas heating
- A hot summer in Asia, which increased energy demand for air-conditioning
- A relatively windless summer in Europe, which depleted levels of stored wind energy
- A drought in Brazil, which depleted levels of stored hydroelectric energy
And now, just to make the situation even worse, Russia – the world’s largest exporter of natural gas – are acting like utter bellends in Ukraine, leading to yet more frenzy in the gas market.
Why is the UK so reliant on natural gas for domestic energy?
Despite decades of calls to phase out fossil fuels in favour of renewables, the UK is still one of the most gas-reliant countries in Europe – with 85% of UK homes still heated by gas central heating, and around 40% of all UK electricity still produced by burning it.
In comparison:
- Around 2% of Sweden’s energy is produced from gas
- Around 15% of France’s energy is produced from gas
- Around 22% of Germany’s energy is produced from gas
- And, for the European Union as a whole, gas accounts for just 22% of overall energy production
Whilst over the last few decades the UK has almost entirely phased out its use of coal power plants, it has also failed to make up the shortfall with either renewable capacity or any other source – and gas still leads wind as the UK’s number one source of overall energy production.
In addition, over the same period, the UK also hugely scaled back its own domestic gas production – leading to the UK becoming a huge net importer of natural gas, with almost half of it now being bought from abroad, mainly from Norway, but also around 4% from Russia.
What other factors are causing UK Energy Bills to rise?
Standing Charges
In addition to the hike in the Energy Price Cap, Ofgem has also published updated figures for average Standing Charges.
Standing Charges are controversial because they are a daily fee that Energy Suppliers are allowed to add on to a customer’s bill regardless of how much energy they actually use.
Standing Charges are essentially a fee for being connected to the energy grid – and they ensure that, even if a household does not use any energy at all, they still pay for costs associated with maintenance of the energy network, such as pipes and wires, that it’s connected to.
However, due to the way our privatised Energy System works, Standing Charges also go towards covering the costs of private Energy Suppliers who go bankrupt – costs such as paying off their outstanding debts, and moving their former customers to a different supplier.
Whilst the Energy Price Cap does take into account rising Standing Charges, a total of 31 energy suppliers have gone bust since the beginning of 2021, displacing more than 4.5 million customers and significantly adding to the overall cost of the increasing Energy Price Cap.
And, as a result, the average Standing Charge for Electricity has risen massively, almost doubling from around 25p per day before April, to more than 45p a day now.
