Most people are aware of the rising cost of energy and have some understanding that global events are affecting supply and demand, which is causing the current gas and electricity price increase.
However, the specifics on why energy prices, including green energy prices, are on the rise are complicated and we don’t all have time to research the ins and outs. So, whilst the nation has been asking, “Why is my electric bill so high?” we’ve been looking at the reasons behind the price rises, why that’s affecting green energy, and what this means for you, the customer.
Why is the cost of energy going up?
Wholesale prices (the price which your energy supplier pays for gas and electricity) have risen due to an increase in global demand as major economies have climbed out of the pandemic-induced ‘recession’, all at the same time.
This has coincided with a period when, last year, Northern Europe experienced a very cold winter, which depleted gas stocks in storage across Europe. Coupled with the fact that our own storage facilities here in the UK are generally not adequate. Not only that, but there’s also been a general nervousness around intermittent gas supplies from Russia - and of course more recently, geopolitical tensions have meant that countries around the world are looking to reduce (or completely stop) their reliance on Russian oil and gas. All in all, it’s been a perfect storm.
Why have green energy prices increased?
Energy is a commodity, regardless of whether it’s green gas, natural gas or electricity.
Whether the gas comes from the North Sea, Russia, the USA or an anaerobic digestor in the UK (green gas generator); when it’s burnt it will provide the same amount of energy.
While the UK only receives a small proportion of its gas from Russia the same cannot be said about continental Europe, this has caused prices to rise in Europe and so to ensure that the UK still continues to receive Norwegian gas we have to pay the market rate.
Likewise, electricity is a commodity – it doesn’t matter if it is generated by wind, water, sun, burning coal, wood chip or gas; a watt of electricity will light the same lightbulb in the same way for the same amount of time.
What is different about the energy we sell at GEUK, is that green gas and electricity don’t add to the problem of climate change in their production, so there are real environmental benefits in that type of generation and its use.
But unfortunately, no matter how it is generated, if there is more demand than supply for energy to heat our homes and keep the lights on - the price goes up. And that is what we are facing right now.
Why has my standing charge increased?
There is the common misconception that the standing charge (or daily charge) you pay as part of your energy bill, is purely the amount the energy supplier charges you for the service they provide, and this equates to their ‘profit’.
Whereas the standing charge in fact, includes the cost of maintaining energy networks, keeping your home connected and energy specific levy’s such as government initiatives e.g. helping vulnerable customers and supporting climate change projects.
It also includes the costs the industry has incurred by so many suppliers failing in recent years. So, when we talk about being a sustainable business… we don’t just mean in terms of being green. We take our responsibility of running our business well, very seriously. Knowing that if an energy supplier goes bust, the cost ends up being passed onto the customer.
The Energy Price Cap Explained
There is an energy price cap in place, which is determined by the energy industry regulator, Ofgem. It is designed to make sure energy suppliers aren’t charging customers too much.
The energy price cap sets a maximum limit that suppliers can charge both per day and per unit of gas and electricity on Standard Variable Tariffs (SVTs). If you are on an SVT, the rate you pay for your energy can fluctuate throughout the year – reflecting wholesale prices. The energy price cap is traditionally reviewed every 6 months. You would be put onto an SVT if you moved into a new home and adopted the supplier by default and not by choice. The price cap protects you from taking on a supply with unfair rates.
But even the price cap must move in line with market forces – in fact it is a good barometer for what is happening to wholesale prices - and it is due to rise in April by 54%.
The rise is a recognition that energy suppliers will be paying more for what they buy - it doesn’t necessarily mean your energy bill will rise by 54% too (because that is also influenced by how much energy you use) - but it is a good indication of what to expect.
Fixed Term Energy Tariffs
At GEUK we offer 3 Fixed Term Tariffs – each one contains the UK’s only 100% green gas and renewable electricity.
The price cap is not applied to Fixed Term Tariffs because the rates you pay are known at the start and they are fixed for the duration of your contract. This is not to be confused with your monthly fixed direct debit – your final bill is driven by your consumption and how many units of electricity and/ or gas you use.
On a Fixed Term Contract, it is down to the energy supplier to make sure their customers are protected from unfair prices and to ensure they buy enough energy to charge that rate throughout the fixed term for all their customers. At GEUK, we take this very seriously and make sure we purchase our green energy in advance and at a fair and ethical price.
But as mentioned above, as our customers’ current tariff contracts come to an end, we have had to buy forward our energy at the current wholesale prices – and these have increased at an unprecedented rate and to unprecedented levels.
Whilst the cost of energy has increased, we have bought enough in advance to protect our customers on our 1 year, Fixed Term Contracts from further price increases - and indeed, the expected further increase due later this year.
At GEUK we don’t have any exit fees so whilst the rates are fixed, our customers are free to leave our Sparkling, EKO Energy and TIDE contracts at any time.
Support from the Government for High Energy Prices
Government Relief Schemes
The UK government has acknowledged that the rising cost of living is going to put pressure on many households and that energy prices will be a part of that. As such they have announced that households across England, Scotland and Wales will receive a discount on their energy bills of £200 from October of 2022. Over the next five years, that discount will then be recovered from people’s bills in £40 instalments from 2023, when global wholesale gas prices are expected to start to decline again, and energy prices begin to stabilise once more.
Council Tax Changes
Alongside the £200 discount, households in England that fall into the council tax bands of A-D will receive a £150 rebate which will be made by local authorities from April and will not have to be repaid. Discretionary funding is also being made available to support individuals who do not pay Council Tax or pay Council Tax on properties in bands E-H. This money will be targeted at the more vulnerable members of society or those on lower incomes.
More information can be found via the government website here.
What It Means for You
It is a concerning time for many people, with the general cost of living increasing. And even for people whose energy bill is not a significant cost, they may still feel concerned about other living costs such as the price of petrol.
But when it comes to your energy bill, there are things you can be in control of. Whilst your energy supplier may set the rates you pay per kWh of energy, you have control over how much energy you are using.
There are many things you can do lower your energy bill – most are very simple and over the course of the year, can make a real difference.
Check out our Summer energy saving tips… and also our Winter ones too. You might be surprised how much energy you can save.
Got more questions?
If you have any questions for us or about GEUK you can visit our FAQ page here or contact us at firstname.lastname@example.org or call 01920 486 156 between 9am and 5pm weekdays and we’ll see if our team can help.