Energy crisis: everything you need to know about whether energy bill rises are coming to an end

The energy crisis has dominated household finances in recent years, but there is optimism that bills are about to fall

Energy Crisis - why your bills are going up
Energy Crisis
(Image credit: Getty)

Our energy bills have rocketed in the past few years, off the back of the energy crisis which has driven up prices and seen a host of suppliers go bust while competitive gas and electricity deals have disappeared.

In October 2021 the energy price cap was set at £1,277. That meant a typical house with average energy use would spend around £1,277 a year on their bills. 

Yet by October 2023 the price cap was a shocking £3,549 - pushing the government to step in and establish the Energy Price Guarantee (EPG), limiting the typical household to pay £2,500 instead.

The EPG has protected households as the price cap went up to £4,279 in January 2023.

But while the EPG has helped people with their energy bills, it is nonetheless a big jump on what we were used to paying previously.

However, with wholesale energy costs dropping and the energy price cap to drop from £3,280 to £2,074 from July, there is growing optimism that energy bills are set to follow suit. 

To help you understand why your energy costs have gone up, we take a look at what has led to this energy crisis in the UK and what may happen next. 

Energy crisis: Why are gas prices up? 

A big driver in our rising energy bills has been the squeeze on gas supplies, which has pushed up the cost of gas for suppliers.

In recent years, the UK has become increasingly dependent on importing energy. However, that has become more difficult due to a host of reasons. 

Firstly, there has simply been increased demand, as nations have come out of their various lockdowns following the pandemic and returned to something approaching normal. Supply of gas has not been able to keep up with that increased demand, driving up the price of importing energy.

Then there has been the conflict in Ukraine. The war has understandably impacted how much gas and oil can be obtained from Russia, which has pushed gas prices up still further. 

Another complication has been added by our lack of energy storage in the UK, making it more difficult for suppliers to stockpile supplies. Tapping into the North Sea reserves for gas has also been wound down in recent years in favour of renewable alternatives.

These various factors forced the price of both gas and electricity on wholesale markets to new highs in 2022.

What about my energy bills? 

The way that our energy bills are priced has become rather more complicated over the last few years, in part due to the rising cost of energy on the wholesale markets.

The energy price cap was introduced as a way of limiting energy suppliers’ ability to overly profit on households who did not switch tariffs every year or so, and who instead ended up on their supplier’s standard variable tariff (SVT). 

However, as the energy crisis took hold and smaller energy suppliers went bust, the surviving energy suppliers stopped offering new fixed tariffs, meaning that most of us ended up on those SVTs and so at the mercy of the energy price cap.

Rising costs on the wholesale markets were passed on to us through increases to the energy price cap, until last autumn the government felt compelled to step in with the launch of the Energy Price Guarantee. This worked like the price cap, in that the unit cost of gas and electricity was frozen for the term of the guarantee, and was set at £2,500 a year for a typical household. 

The Energy Price Guarantee was due to be hiked to £3,000 for a typical household in April, but the current terms were instead extended for three months

Now though the falling cost of energy on the wholesale markets is feeding into the prices we will pay each month, with Ofgem announcing that the energy price cap for July to September will be £2,074.

As this is lower than the Energy Price Guarantee, it will take over as the main dictator of price to energy suppliers, meaning typical households will see their energy spend drop by around £500 a year.

It is then expected that the cap will continue to fall. The analyst Cornwall Insight forecasts that the energy price cap for the final three months of the year will fall to £1,960, and then increase to £2,026 for the first three months of 2024.

Finding the best energy deal  

Only one supplier, Ovo, has been brave enough to launch a fixed tariff priced below that of the EPG. Importantly, this tariff was restricted only to existing customers, so you can’t switch to take advantage.

What’s more, this tariff will cost the typical household £2,275 a year, so while it worked out as cheaper than the EPG, it is more costly than deals protected by the forthcoming energy price cap.

While you can switch to a new supplier at the moment, they aren’t offering fixed tariffs that are going to represent a saving. As a result, it may be worth holding fire until such time as suppliers feel confident enough to compete through new tariffs, and then determine whether it is worth switching.

One way to mitigate your energy bill is to reduce your energy usage as much as possible. Read how the Wallaces have used targeted heating, dehumidifiers, logs and a laundry technique to cut their energy consumption by 30%

Which energy companies are failing? How will I be affected?

Shockingly, dozens of energy suppliers have folded over the last couple of years. These include: Hub Energy, Igloo Energy, Avro Energy, Green, Utility Point, Green Network Energy, Simplicity, PfP Energy, People's Energy, MoneyPlus, Pure Planet, Colorado Energy, Daligas, Entice Energy and Orbit Energy. The largest to fold, Bulb Energy, had around 1.7 million customers.

These suppliers could not charge customers more than the cap, and so had to take on the rising cost of wholesale energy themselves. With the cost of natural gas rising substantially,  many suppliers simply could not keep themselves afloat. 

If your energy supplier goes bust you will still receive gas and electricity while Ofgem moves you to a new provider. If Ofgem cannot find a new provider it will appoint a temporary ‘special administrator’ to the failed energy firm.

Industry rules mean affected customers will not lose money owed to them. Any new company is also responsible for taking on any credit balances the customer may have.

Katie Binns

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.