Why Are Energy Prices Increasing?

Why Are Energy Prices Increasing?

Ofgem, (the Energy Regulator) recently announced an increase in the price cap for default tariffs in response to record gas prices. This nationwide issue will have a direct impact on everyone in the UK.

Customers connected to the Social Energy hub will be pleased to know that they have already protected a portion of their household energy needs from this increase. However, the price for the energy that is taken from the grid is increasing, which is why we are having to increase our prices.

There are several factors that have contributed to the rising energy costs, below is a breakdown of the biggest reasons which are affecting everyone worldwide.

  1. Record Gas Prices

Recent reports claim that the demand for gas was abnormally high last winter, which had a direct impact on the stored reserves, which are now much lower than normal. Additionally, supply projects have been disrupted due to the pandemic which has made the market extremely competitive.

Furthermore, ships containing Liquefied Natural Gas (LNG) will travel to the highest bidder. Due to abnormally hot conditions in Asia, the ships can earn significantly more by delivering to ports in this region. With stocks lower than normal, and supply hard to come by, the price must increase to incentivise gas to make it to Europe in time for winter.

  1. Carbon Costs

For every unit of electricity that a powerplant generates, it must calculate how much carbon dioxide it has produced at the same time and purchase a permit to emit that. These permits are traded on the open market and, in the marketplace, powerplants that can affordably switch to cleaner alternatives do so, and only those that cannot afford to will buy the permits.

Unfortunately, in the UK there’s still a significant number of non-renewable powerplants. As a result, the market price needs to cover both these powerplant’s fuel bills and emissions costs for them to run.

This year, the price of carbon has risen around 70% – directly increasing the cost of electricity production and feeding directly to the higher wholesale prices.

  1. The impact of Covid-19

The industry continues to feel the wide-reaching impacts of the pandemic. Ofgem collated information on the financial impact and consulted with the industry before determining the level of adjustment required in the price cap, to allow suppliers to start to recover some of their additional costs related to COVID-19.

Social Energy is here to support you

We have signed up to Ofgem and Energy UK’s voluntary winter commitment, to offer support to customers who are concerned about paying their bills. We are all energy customers too and we know how worrying price increases can be.

We have pledged to:

  • Make your bills as accurate as we can
  • Raise awareness of the help and support available to you
  • Make it easy for you to contact us if you’re worried about payment

If you want to know more about the help available, please get in touch with us.

 

 

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