From October, households on standard variable tariffs will see another change to the energy price cap. The headline news is prices going up by 4% but what does that mean?
Electricity will cost approximately 26.32 p/kWh, up from 26.11 p/kWh, while gas will rise to 7.97 p/kWh from 7.33 p/kWh. Standing charges will also change, with electricity reducing from 57.19 p/day to 54.83 p/day and gas increasing from 29.04 p/day to 29.68 p/day.
This means that those primarily using electricity will be less affected by the new price cap than those using gas. This is in part due to the Government removing VAT from electricity. It also aligns with wider efforts to rebalance energy costs, with increasing discussion around moving some policy costs away from electricity in order to encourage electrification.
For many households, the immediate effect will simply be higher bills as autumn approaches as heating systems begin to switch back on.
Why Are Prices Rising?
Energy prices can often feel very disconnected from what is happening locally.
The UK now generates increasing amounts of renewable electricity, yet household bills remain heavily influenced by international gas markets. This is because natural gas still plays a major role in both heating homes and setting electricity prices during periods when renewable generation cannot meet demand.
This summer has provided a good example of that dependence and the following charts of the Octopus Tracker tariffs illustrated by Agilebuddy.uk provide quite a good illustration.
Gas prices over last winter were relatively stable apart from a brief period in late January likely reflecting a combination of colder weather, depleted supplies, lower wind and geopolitical uncertainty.
The big change came after the conflict in the Middle East began as this disrupted the supply chain significantly increasing prices and also after Europe had got to spring with gas reserves lower than normal. The next knock on effect has been the price in late summer that’s likely been driven by the heat waves. Late summer is typically a time when gas supplies are getting replenished in time for winter but they are more depleted than normal.
The heat waves have increased cooling demand that have increased electricity demand. The high pressure has meant less wind generation and due to the heat across Europe and several nuclear reactors across Europe have had output reduced or have been temporarily shut down because high river temperatures and low river flows limited cooling capacity.
This has meant gas has increasingly been used to generate electricity at a time when gas reserves are needing to be replenished ahead of winter.
This is all leading to predicted higher costs on the Wholesale gas markets.
Electricity whilst still heavily connected to the gas price due to the marginal pricing system the market currently uses is beginning to slowly disconnect itself from the volatile gas market and this can be seen from the Octopus Tracker Tariff. The days when renewable generation is high the price drops significantly and the days when the grid is using a reasonable amount of gas, the gas price sets the electricity price.
What can you do?
It’s possible to still get fixed rate tariffs ahead of the price cap but the likelihood is if your building is heated by oil or gas then it is probably going to be a more expensive winter. Unfortunately, heating oil is not protected by the price cap so prices of this will likely be even higher.
The primary focus should be beginning to look into ways to source your buildings energy from electricity rather than fossil fuels. This may be fitting solar panels, getting batteries, shifting heating/cooling to a heat pump etc all of which reduces the amount of fossil fuel we need to buy that gets shipped from other parts of the world. There are grants in place to help with this and have been for possibly 15 years trying to encourage people to make this switch.
A good first step is likely to be ensuring you have a working smart meter as this enables access to the best tariffs as then the energy company is able to see at what point in the day you are using electricity so can offer you beneficial tariffs if you can shift your electricity consumption.
The bigger picture: how do we reduce the electricity price?
The overall electricity price is generally dictated by the gas price and the daily electricity price spike between 4-8pm. This happens when the sun goes down and people go home and turn on various appliances leading to a daily wholesale price spike. The generalised UK approach to this is increase renewable generation while shifting demand away from the 4-8pm peak and deploying more battery storage.
The daily price spikes can be seen in the Octopus Agile tariff below illustrated by Octoprice.app.
Interestingly, parts of Australia are now demonstrating how large amounts of solar and battery storage can significantly reduce evening wholesale price spikes and lower overall electricity costs. Whilst they haven’t removed this evening peak entirely they are getting closer to doing so with large amounts of battery storage.
The common approach for an increasing number of UK households have been to fit solar panels and batteries to disconnect themselves from the grid price and generate their own electricity. Energy companies have also been offering increasingly innovative electricity tariffs to incentivise people to shift their energy usage outside of this 4-8pm window.
It is going to be an expensive winter from the predicted natural gas price but there are definitely opportunities if you are able to electrify and shift your consumption to different times of the day.
How Woohoo Can Help
At Woohoo, we help people understand where their energy costs are really coming from and what can be done about them. Rising prices often lead straight to thoughts of major upgrades, but the biggest opportunities are not always the most obvious ones.
We start by understanding how a building uses energy today. That might mean reviewing utility data, assessing heating systems, identifying wasted energy or exploring whether technologies such as heat pumps, solar PV, battery storage or smart tariffs could reduce exposure to future price rises. Understanding current performance is often the first step towards making informed investment decisions.
The goal is not simply to reduce the next bill. It’s to create a longer-term strategy that makes buildings more comfortable, more efficient and less dependent on volatile fossil fuel markets.