The energy price crisis has been a cause for concern for thousands of households across the UK in 2022, with many unable to pay their energy bills.
Due to a series of events, including global supply shortages and national energy price cap increases, there has been a huge increase in the price of energy. As we reach the end of the year, can we expect these price increases to continue in 2023?
Why are energy prices so high?
There are a few different reasons why energy prices have been exponentially high in recent months.
Firstly, we are still experiencing the effects of the two year pandemic period. During the pandemic, the use of energy dropped. However, since life has returned to normal and life has resumed as before, there has been a huge shift in demand again, pulling prices right up.
On a global level, one of the key reasons for high energy prices is the ongoing war in Ukraine. The war, and the subsequent restrictions placed on Russia, has led to a huge decrease in global supply of oil, with Russia responsible for a large proportion of the world’s oil supply. This scarcity of oil supply has meant that the price of wholesale oil has been higher than ever.
As a knock-on effect of the increase in the price of wholesale gas, energy suppliers have had to increase the price they charge consumers per unit of energy. As a result, households have experienced a huge increase in their monthly energy bills.
Samuel Davies of Kallyss commented: “Throughout the world, people are unfortunately seeing their energy bills rising. This is clear from the online search behavior people are demonstrating. For example, in the US, searches for ‘online payday loans Florida’ and ‘loans in Texas’ are rising, which is an indication of the financial position people are finding themselves in. In the UK and Europe it is a similar picture, as the cost of living broadly continues to bite.”
The Energy Price Guarantee
The increase of the energy price cap has been a huge financial hit for the majority of consumers across the United Kingdom, multiplying their household bills exponentially and leaving many unable to afford the new costs.
However, to protect consumers, the Government announced the Energy Price Guarantee. Coming into effect on the 1st October 2022, this new scheme will reduce the amount that consumers need to pay per unit of energy, reducing their overall bills.
With the new scheme, the unit cost of electricity and gas will be lowered to save households around £2,500 annually on their energy bill, for the next 6 months. The government will also be supporting energy suppliers, fully compensating them for the savings delivered to households.
Although this arrangement may seem like a win-win, both for energy suppliers and consumers, the Energy Price Guarantee will come to an end in April 2023, rather than the original given date of October 2024. This means that from April 2023, consumers will once again be subject to changes in wholesale gas prices.
Hugo Anglesford of finance startup Doddler commented: “The UK’s Energy Price Guarantee has been welcomed by consumers, particularly those who are on the lowest incomes and the most vulnerable in society. Were this scheme not in place, it is more than likely that more people would need to find a short term loan solution to get them through what is likely to be a tricky winter in the UK.”
What will happen to energy prices in 2023?
With the Energy Price Guarantee in place, consumers have some protection and security when it comes to energy prices, however, only up until the end of April.
From April 2023, analysis from Cornwall Insight suggests that energy bills could soar by 48%. Although this is lower than previous predictions, it is still largely subject to change, depending on what the wholesale prices will be at that time.
Latest predictions based on average typical use for those on a dual tariff suggest that households could face an increase of £1,202 for bills, a total of £3,702 from April 2023.
Currently, wholesale gas prices are at the lowest level that they have been since June 2022 - in part, due to the relatively mild weather we have been experiencing and also in the amount of gas stored in Europe. However, it is difficult at this stage to predict what the state of global supply will be after April 2023.
What do energy price rises mean for businesses in 2023?
Energy prices globally are not yet showing any sign of falling and business, much like households are feeling the effects of rising energy costs. Businesses around the world are having to make difficult decisions around how to allocate the necessary and required funds to pay for the higher costs, which for any business with physical premises, is getting very expensive.
Prioritizing what a business spends its money on and where it invests is therefore becoming more important, with integral costs like VoIP phone systems and internet access for businesses being prioritized over in some cases, additional staff and larger premises. The fear is that there will be knock on effects of businesses cutting back on their growth to pay for running costs like energy bills.