Throughout 2021, the UK faced a rise in energy prices for several reasons, however, the problems were also being reflected globally and are still an ongoing issue.

From the 1st of April 2022, Ofgem, an energy regulator in the UK, has announced that the energy cap price will rise by 54%.

What is an energy cap?

An energy cap is the maximum amount a utility company can charge the average UK customer per year for the amount of electricity and gas they use.

It is reviewed every 6-months and is currently £1,277. However, the change will see it become £1,971.

But why is it happening? Well… it is largely linked to the wholesale cost of energy increasing as a consequence of soaring gas prices.

Why are gas prices so high?

Energy prices are up globally, not just for the UK, and are a result of predominantly international issues.

The main one being that the demand for energy was, and is, increasing faster than the supply could/can maintain.

The energy demand in Europe increased significantly over the recent winter months where countries faced colder climates, and meant that stored energy supplies were used.

Asian countries also faced increasing demand (in 2019 alone their demand was almost 4% higher than the rest of the world according to the International Energy Agency) and Russia’s supply of pipeline gas was also lower than expected.

According to the Oxford Institute of Energy, the main reason for these supply issues greatly stemmed from a number of outages at export plants that happened while the demand outside of Europe surged. They further continued to say:

“On the European market, the decline in LNG imports was accompanied by a decline in European production plus pipeline imports from regional suppliers, most notably Russia.”

Additionally, with the current ongoing war between Ukraine and Russia, prices are expected to be further affected too.

Russia provides roughly 40% of Western Europe’s gas supply however the UK’s reliance on it is smaller at just 3%.

How is the energy cap calculated?

The energy price cap limits suppliers to a maximum base charge and price for each kWh of energy and gas used (which is then used to calculate your bills).

Ofgem bases its cap levels for Summer and Winter on underlying costs to supply energy across the country.

Having an energy cap is an attempt to keep prices fair and have it so that the costs we consumers pay completely mirrors the cost that energy suppliers have to purchase and supply energy at.

If you’re concerned about your finances, why not get in touch with our financial advisors today?

Coffey Brooks are a team of Independent Financial and Mortgage Advisers based in Clacton-On-Sea, Essex and are directly authorised and regulated by the Financial Conduct Authority.