UK energy market in crisis: what it means for you

Energy costs have rocketed to record highs, meaning much higher bills for all customers. Find out why, and what you can do to protect yourself.

Understanding High Energy Bills and Making Informed Decisions

Energy prices have eased since the worst of the crisis, but they remain significantly higher than before 2021. The surge in bills between 2021 and 2023 was caused by soaring wholesale gas prices, triggered by post-pandemic demand and the disruption of global energy supplies following Russia’s invasion of Ukraine. This led Ofgem, the energy regulator, to raise the energy price cap to record levels, peaking at more than £4,200 per year in early 2023 for a typical household.

To shield households from the sharpest rises, the government introduced the Energy Price Guarantee (EPG), which limited annual bills to £2,500 until June 2023. The EPG has now ended, and households are once again paying prices directly linked to the Ofgem price cap. While the price cap has fallen considerably since its peak, average bills are still nearly double what they were before the crisis began.

It is important to note that the price cap does not limit the total amount you pay – it limits the unit rates and standing charges energy suppliers can charge. If you use more energy than the typical household, your bill will be higher.

Why the Price Cap Is Changing and What It Means for Your Bills

After peaking in 2022, wholesale gas and electricity prices fell thanks to lower demand and Europe diversifying its supply away from Russia. This brought down the price cap in stages, giving some relief to households. However, any recent stability has been completely upended by the escalation of the conflict involving Iran.

The Impact of the Iran Conflict

The eruption of the conflict involving Iran has injected massive volatility back into global energy markets, putting severe upward pressure on wholesale prices. Military actions and disruptions to vital shipping routes—such as the Strait of Hormuz—have severely tightened the global supply of oil and liquefied natural gas (LNG). Because the UK remains heavily reliant on global wholesale markets to set domestic power rates, these tensions have completely reversed previous downward trends, causing wholesale gas prices to surge once again and directly driving up the cost of supplying energy to British homes.

Consequently, previous baseline figures—such as the April cap of £1,641, is no longer reflective of where the market is heading.

Is It Time to Fix Your Energy Deal?

With prices shifting rapidly due to these global pressures, the question of whether to fix your energy deal has become critical. While some suppliers had begun offering competitive fixed-rate tariffs during quieter market periods, the threat of rising costs changes the strategy.

Important Forecast Update: Market indicators and expert analysis now assume that the next price cap announcement will be significantly more expensive, climbing by approximately £210 for a typical household.

Fixing your deal now could give you vital certainty for the next 12 or 24 months, shielding you entirely from this impending price hike and any further spikes if the Middle East conflict intensifies.

When weighing up your options, think about how important price stability is to you. If you prefer certainty over the risk of future increases, a fixed deal near or below the current price cap could be a good choice to protect your finances. On the other hand, if you are comfortable with risk, you may choose to stay on a variable tariff.

Remember that the monthly amount you pay by direct debit is usually just an estimate based on your annual usage. Always check the unit rate and standing charge to understand exactly what you are paying for each kilowatt-hour of energy.

Staying Ahead of the Market

The energy market remains highly sensitive to global events, and the expected £210 jump in the next price cap shows just how quickly things can change. Staying informed and regularly reviewing your tariff is the best way to keep your energy costs under control.

In summary, although energy bills have dropped from their historical 2022 peaks, they remain high and are on the rise again due to global conflict. Carefully comparing tariffs, considering whether a fixed rate is right for your risk appetite, and making your home as energy-efficient as possible will help you manage your bills in the months ahead.