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Just as the UK seems to be emerging from one crisis – COVID-19 – it seems to be walking into another one: an energy shortage. Likely, you will have seen recent headlines about power bills rising across the country. The fact that this is happening as we near the colder winter months is even more concerning. Energy providers have been given the all-clear from Ofgem (the energy regulator) to raise their prices up to 12% higher for variable-rate tariffs. This could lead to bills increasing by up to £139 compared to the old cap.
In this article, our financial planning team at Cedar House examines why prices are going up and what you can do to mitigate the impact on your finances. We hope you find this content useful. If you’d like to discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
Why are energy prices rising?
Energy prices usually rise when demand outstrips supply. Today, a series of events and factors seem to have come together to create a “perfect storm” for the consumer. In Asia, hot weather has resulted in higher demand for electricity needed for air conditioning. Russia is also exporting less natural gas to Europe (potentially for political reasons), and stored gas levels in Europe are much lower than usual due to a cold winter in 2020. The rise in gas prices, moreover, has led to many UK energy firms going bust; with over 2m customers getting passed on to other suppliers, where they might pay as much as £30 extra per month. The UK has also arguably suffered due to the demise of North Sea gas and the closure of a large storage plant (The Rough) in 2017.
Who will be affected?
At the time of writing, there are no deals cheaper than the new price cap. This means that about 11m households across the UK are set to pay £139 per annum. The new cap will be the default for those coming off fixed deals and for people who have never switched energy suppliers. The new cap is set to continue until 1st April 2022. During this time, it is possible that cheaper deals become available again and you have the option to switch. However, widespread expectations are that on 1st April 2022 the price cap will likely rise even further – possibly by another 14% (to £1,455/yr, based on common use).
How can I mitigate my costs?
Remember, the new cap set by Ofgem does not represent the most that your household will pay for energy. Rather, it is the limit that you can be charged for one unit of gas and electricity. So, the less energy you use, the less you pay. If you are looking to mitigate the impact of energy prices on your household bills, therefore, you need to either reduce your energy usage, make your home more energy efficient – or both.
One very simple way to reduce your energy consumption is to turn off idle appliances. Do not leave mobile phones charging overnight, for instance. This could save an average of £30 per year. Forming new washing machine habits can also help – e.g. washing clothes at 30° rather than 40° and cutting out one cycle per week (if possible). You can also save money on water by washing up in a bowl instead of under a running tap, and you could save £25 per person, per year, by purchasing a more efficient shower head and by using a shower timer.
If you can bear to be colder, moreover, then lowering your thermostat by just 1 degree can save around £80 per year. You could also invest in a smart thermostat – which only heats the rooms that are being used – to potentially save another £75 per year. Consider also making your home more “draught-proof” (e.g. by sealing cracks in skirting boards), which can reduce the urge to turn up your heating during cold spells; possibly saving up to £35 per year.
To save even more on energy costs, you could invest in more efficient appliances once the old appliance needs replacing. An A+++ washing will likely use £65 less energy compared to an A+ (over an 11-year period), for example, and an A + + + fridge freezer could save £300 over its lifespan compared to an A+. You might also consider upgrading your boiler. An A-rated boiler (condensing; with all of the “bells and whistles”) could save £300 per year next to a G-rated one.
Other ideas include installing double-glazing to insulate your home and reduce the need for heating – which could save you over £100 per year. A semi-detached house could also save a further £130+ by insulating the roof (although this process can be complex). Then, there is also the option of generating your own electricity by investing in the likes of solar panels, water mills and biomass boilers. You could even use a vehicle-to-grid system to sell back to the grid!
Conclusion
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk