Although we're all seeing the consequences of increasing energy costs at home and at work, it's a worldwide problem that has been driven by some unexpected and far-reaching factors. The question that often crosses our minds is, will energy prices go down?
The situation in Ukraine is presently having a significant influence on what was already a significant problem with energy prices. However, the following factors have also contributed to an increase in energy costs:
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In Europe, natural gas storage depleted as a result of a protracted cold winter between 2020 and 2021.
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Asia's high demand for Liquefied Natural Gas (LNG) has decreased LNG exports to Europe.
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After first reducing its capacity to 20%, Russia has now totally shut down the Nord Stream 1 pipeline. This has triggered a supply bottleneck in Europe that is driving up prices.
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The delay of the Nord Stream 2 pipeline, an $11 billion connection over the Baltic Sea with the ability to carry 55 billion cubic meters of gas straight from Russia to Europe, circumventing Ukraine.
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In reaction to the Russian invasion, Germany prevented the pipeline from operating despite its completion.
Why are energy costs in the UK so high?
Clearly, we are in the middle of a worldwide energy crisis. However, to make things worse, the United Kingdom also faces the following issues:
Reduced renewable energy output
Low wind speeds, combined with outages at certain nuclear power plants, have led to an increase in the proportion of our electricity production. If you are on a green energy plan that delivers 100% renewable power, your prices will still rise.
Because of how the UK energy system operates, the price of renewable energy is related to the price of gas. As gas costs increase, so do the prices of renewable energy. So, there is so much confusion about will energy prices go down or keep increasing.
Kent National Grid facility on fire
This resulted in the destruction of a power wire that connects England and France. It is used to import energy from the continent. This is not anticipated to be fully operational again until 2023.
Reduced gas reserves
The UK has among the lowest gas reserves in Europe. It makes it almost impossible to stockpile gas for emergency usage. Capacity is about comparable to 2% of the UK's yearly consumption, compared to 25% for other European nations and up to 37% for Europe's four major storage holdings.
Inadequate government assistance
Although the government's £15 billion support plan would see families credited with £400 over six months beginning in October, this will not have the same effect as measures used in other European nations.
Until the end of the year, France has banned power price hikes at 4%.
Issues with the energy industry
Since 2021, 28 energy providers in the United Kingdom have failed. This is partly due to the fact that many of them had business models that could not accommodate a rise in wholesale costs. And when providers fail, customers contribute to the cost by paying higher bills.
Why are the costs of renewable energy so high?
If you are on a green plan that provides 100% renewable energy, you may be asking why your rates are increasing. We all know that no fossil fuels are utilized to create it. Many green energy customers think will energy prices go down. Let’s break the bubble, it’s very unlikely!
All of this is due to the functioning of the UK's energy grid! Although renewable energy accounted for over half (45.5%) of the United Kingdom's total energy output in the first quarter of this year, gas-powered plants continue to provide part of our electricity.
This is the source of the price difficulties. The pricing of energy is determined by a method known as Marginal Cost Pricing. This essentially implies that the most costly source of energy determines the price of all energy types, including renewables.
For Renewable Energy Plan
Even if you are on a 100% renewable energy plan, the price of your power will rise. This is because it is determined by the cost of the last source utilized to fulfill demand, not the cost of wind or solar output. As gas-powered stations are used to supplement the United Kingdom's energy demand, the cost of gas-powered electricity is used to determine the price of all electricity.
Consequently, when gas prices rise, you can be sure that electricity rates will follow suit.
The system is under review until October 22, but one aspect of the Prime Minister's energy cap announcement that may have flown under the radar was the transfer of renewable and nuclear electricity from marginal pricing to Contracts for Difference.
This will result in the cost of renewable and nuclear energy no longer being related to the price of gasoline. Instead, producers will get a predetermined, set price for the low-carbon power they generate for the duration of the contract.
This decoupling of expensive global fossil fuel pricing from electricity generated by less expensive renewables should assist guarantee that customers enjoy reduced costs when moving to less expensive, clean energy sources.
What if you operate a company from your home?
If you operate your small company only from your home, you may not have moved to a business energy plan. In this instance, the cap will affect you in one of two ways. Let’s find out will energy prices go down for you.
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If you're on a regular variable rate tariff, your prices will rise in accordance with the price limit.
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Your supplier will raise the cost of its fixed-rate packages, so you may feel the squeeze if you transfer energy providers in the near future.
Naturally, if you operate a company from home, you will use more energy than if you worked in a professional setting, especially in the winter.
In addition, the more gas and electricity you use at home, the higher your energy expenses will be. If you do not work from home and operate your company from a fixed location, such as a salon or restaurant, you will not be protected by a price restriction.
Even if you have a customized gas and electricity plan for your company, you may discover that your commercial provider has raised prices to match rising expenses at your next renewal. Therefore, it is essential to compare offers when the switching opportunity opens.
Will energy prices go down in 2022?
The present volatility of the energy market makes it difficult to anticipate whether energy costs will decrease this year. Although prices have fluctuated during the year, the general trend has been an increase.
According to projections by Cornwall Insight, an energy research and analysis firm, energy costs might stay elevated until next year and perhaps beyond 2024.
But the revelation of the energy price guarantee restricting residential and commercial rates means that the rates you pay won't change for the remainder of the year and into 2023.
Take Away
The energy prices are not going anytime soon. So, the best approach is to switch suppliers and save wherever you can. Consider that switching might save your company hundreds of pounds each year!
If you are worried about energy bills, contact Utility4Business today. Our corporate energy specialists will search for the greatest offers from our panel of reputable and high-quality UK energy providers. After that, they will be, before assisting you in selecting the ideal energy tariff over the phone.
You just need to choose the offers you like, and we will do the rest. In addition, there is no need to worry about renewals, since we can locate the greatest offers year after year.
