Wholesale energy prices in the UK are continuing to rise as markets recover from the height of the global pandemic. That's bad news for households, many of which are already facing higher bills thanks to the cold weather and lockdown keeping people at home and using more energy.
Both gas and electricity prices have increased sharply in the past month. Gas prices have jumped a fifth to their highest level in nearly three years, according to This is Money. Meanwhile, electricity prices are the highest they’ve ever been, with a megawatt hour costing almost £1,500.
Industry experts believe that energy regulator Ofgem will increase the energy price cap in response to the increasing wholesale prices when it’s next reviewed in February. That's likely to mean higher energy bills for anyone on their supplier's default tariff - and according to Ofgem's latest figures, some 53% of UK households are on exactly this plan.
But it isn't all bad news: if you're looking to switch supplier, you can fix your prices now before they rise any further. The fastest way to do this is to run an online energy comparison to find the best energy deals in your area, and switch to the provider of your choice.
- Online energy comparison: find the best deals in your area now
Energy demand skyrockets
The UK's increase in demand for energy has been credited to two factors: the cold weather, and the new national lockdown, which is in place until at least the middle of February.
Freezing conditions in January have led to heavy snowfall across northern parts of the country. This has caused many households to crank up the thermostat, light the fire and put the kettle on. At the same time, the country’s national lockdown means that more of us are staying indoors than ever before, and using more energy than usual while working from home.
As a direct result, it’s estimated that the country’s gas usage is currently 40% higher than this time last year. And it’s not just the quantity of gas we’re using that’s problematic. There's also been a drop in the country’s wind power output. This means we’re currently more reliant on imported fossil fuels, which are going up in price.
Energy price cap likely to rise
In response to rising wholesale costs, energy regulator Ofgem is also likely to increase the price cap when it’s next reviewed in February. In the last review, Ofgem reduced the price cap to £1,042 per year to reflect the drop in wholesales costs following the pandemic and prevent customers from overpaying.
A higher price cap won't affect you if you're on one of the many competitive fixed tariffs from the UK's best energy suppliers that already undercut the price cap. However, if you're one of the UK's 15m homes that are currently on a default standard variable tariff (SVT), your bills are likely to go up.
SVTs are already among the most expensive energy plans on the market. But many customers are unaware they've been changed onto an SVT when their fixed-term deal has ended.
If you’re not sure what sort of tariff you're currently on, check your bills and speak to your supplier. If you haven’t switched provider or tariff in the last 12-24 months, it’s very likely you’re overpaying for your energy.
Switch supplier to lock in low prices
The good news is that you can switch tariff before any new prices come into effect, and by choosing a fixed tariff you'll be able to lock in the price of your energy for the next 12-24 months. Even if you're not on an SVT, you may be able to save money by switching to a more competitive plan - just be aware that if you're already on a fixed plan you may need to pay early exit fees to leave your current provider.
The switching process is easy. You can use any online comparison service (including ours, which we're providing with MoneySupermarket) to find the best tariffs in your area. All you need to do is provide some basic information about your home and energy use, and in less than two minutes you’ll be shown all the latest energy plans, plus how much you would save by switching to each.
