Why Are Electricity Prices Rising in the UK

Why Are Electricity Prices Rising in the UK?

Rising energy prices are no surprise to residents of the UK. If you compare current energy rates and tariffs to prices back in 2005, you’ll easily observe that the rates have increased more than double! Some often wonder, should the apparent increase in renewable energy production and consumption at least help reduce the price increase?

Factors affecting the increase in energy prices

 Consumers continue to be alarmed by the ongoing increase in energy rates. Businesses and commercial establishments are often hit harder because the rise in energy prices contribute to higher overhead expenses and lower profit margins. These price increases are resulting in more and more companies using comparison sites like the Utility Bidder electricity quote finder to switch to a better tariff. But why then are energy prices rising?

  1. Low gas reserves. Climate is a major contributor to the increase or decrease in demand for energy. With extended cold weather, there is a higher demand for gas resulting in gas storage reaching critically low levels. Even if the worst is over, prices won’t suddenly decrease as the National Grid will attempt to recover from the impact of this event.
  2. Generating electricity. A large portion of power used throughout the country comes from burning gas. A low gas supply means there is less to use for producing energy. It’s a simple law of supply and demand where the higher the demand, the costlier the commodity.

In addition to the above factors which mainly impact the wholesale prices of energy, some practices by energy suppliers also affects rates.

Energy supplier practices

Energy supplier practices

 Because the wholesale energy market is volatile, energy suppliers choose the right time to buy energy from the wholesale market. This practice of buying in advance is called hedging and gives energy suppliers the buffer they need in case of sudden wholesale price increases. Unfortunately, this may not always benefit the end consumer because although you are protected from unexpected price increases, you won’t be able to take advantage of price drops in the wholesale market.

Aside from hedging, another factor which may contribute to higher energy costs is the amount suppliers charge for overhead expenses used in constructing and maintaining infrastructure. Even with government regulations already in place, suppliers will still charge consumers more for the cost of maintaining the network.

Moreover, suppliers are still profit-generating businesses where their main focus is to ensure that they are hitting their targets regarding profit.

What to do about high energy prices? 

Aside from the help the government is providing by regulating and putting a cap on energy prices; consumers can also help themselves by taking advantage of the option to switch from one supplier to another. As competition grows and more small-scale suppliers grab market share from the Big Six, consumers are presented with excellent offers and rates that can help them save money and avail of better services with a new provider. There is no doubt that prices will remain high and perhaps continue to increase in the coming years. Nevertheless, consumers are not left without an option because switching to a new provider might just be what you need to pay less for your energy.