APRIL 2023 ENERGY PRICE INCREASE HAS BEEN ANNOUNCED.
In April 2023 energy prices will increase by 20% for the vast majority of households in the UK. There are roughly 27 million households in the UK. According to Ofgem, around 4 million households are on fixed energy deals and 24 million are not. If you are not on a fixed deal you may want to brace yourself for further price increases on your monthly energy bill.
Wholesale energy prices have been falling but not fast enough. There is still a long way to go and support is still needed for households. The level of support however is being reduced by the UK government but is the right thing for them to do?
UPDATE THE 20% PRICE INCREASE HAS BEEN CANCELLED – READ THIS BLOG POST.
Why are energy bills going up if wholesale energy prices are dropping?
The Energy Price Cap is based on historical energy prices. It is based on wholesale energy prices for the last 3 months. Energy prices have indeed fallen but there is still a long way for them to come down.
The Energy Price Guarantee is currently below the Energy Price Cap. The Energy Price Guarantee is the price set by the government which states the most an energy supplier can charge you for gas and electricity per kWh. The government then pays the difference between the Price Cap and the Price Guarantee to the energy supplier. So you get cheaper bills and the government picks up the tab.
- Energy Price Cap – Set by Ofgem and is based on historical energy prices.
- Energy Price Guarantee – The limit set by the government which dictated the most a customer will pay for their energy. It is currently a discount on your energy bill as the Energy Price Cap is higher. The government pays for this discount.
These figures show you how much the government paid per household based on typical use up until April 2023.
- Energy Price Cap – On “typical use” is £4279 up to the end of March 2023
- Enerf Price Guarantee – On “typical use” is £2500 up until the end of March 2022
- The government based on typical use pays energy suppliers £1,779 per household to the energy supplier.
From April 2023 the government is reducing the amount of discount they are giving customers under the Energy Price Guarantee. Energy wholesale prices have dropped but they are still higher than the Energy Price Guarantee.
- Energy Price Cap – On “typical use” is £3,280 from 1st April 2023.
- Energy Price Guarantee – On “typical use” £3,000 from 1st April 2023.
- The government based on typical use pays the energy suppliers £280 per household to the energy supplier
So the government will still need to pay energy suppliers on our behalf but not as much as wholesale prices have dropped and they have reduced the amount of discount they will give households. Households will pay more, the government will provide less support. That’s why energy prices are going up for customers.
How much will the government save?
As I understand it there has been a 90% underspend on the government budget as wholes prices have dropped. This is why people like Marin Lewis are screaming for the Energy Price Guarantee to stay at its current price. Customers are at breaking point and the budget is there to offer support until July when hopefully the Energy Price Guarantee is no longer needed.
Energy Support Scheme
It is also important to remember that the £66 payments under the Energy Support Scheme which all households have received will end in March 2023. Some may be still eligible but not every household will receive the payment. So that will mean your outgoings on your energy bill will be more than an extra 20% rise.
Martin Lewis explains why energy prices will increase in April 2023.
Why the energy price cap will fall in April, but we’re all set to pay 20% more.
— Martin Lewis (@MartinSLewis) February 27, 2023
The price increase isn’t a shock as was announced in the last budget. Reducing the discount households receive under the Energy Price Guarantee means that energy bills will increase by 20% to make up for the shortfall. Some may argue that this is fair as the government doesn’t have an unlimited supply of cash but campaigners like Martin Lewis have been calling on the government to reverse their decision.
When will we see our energy bills go down?
As the Energy Price Cap is based on historical wholesale energy prices and wholesale prices are continuing to fall we should see prices fall below the Energy Price Guarantee by July 2023. I am hopeful of an Energy Price Cap of around £2,100 by July.
I am a big advocate of reducing consumption and load shifting. This means ducking and diving to try and say money using less energy or using energy off-peak. At the moment that is the only real way to save money, you have to hustle by adding solar panels or just using your white goods at night when energy is cheaper. (You need to be on a time-of-use tariff)
My preference has always been a fixed energy deal but they have been off the scene for quite some time, however, as wholesale prices continue to fall I can see them making a comeback by the summer of 2023. At this point, I think you should grab a fixed deal with two hands and hold on tight! You can always switch tariffs if they fall further but it gives you lower prices guaranteed for a longer period of time.
Let’s hope we see these new fixed tariffs emerging very soon!