Why are energy prices going up?

Well, the first answer is that Ofgem, which regulates the domestic gas and electricity market in the UK, has raised the price cap, the level at which energy suppliers cannot charge higher than.

It is going up by 54% from an average of £1277 per year to £1971 per year. This will cover the period from April to October this year and it could go up again after that going into next winter.

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The next question is why has Ofgem raised the price cap?

They have raised it because energy firms have said they are paying more to buy gas in the wholesale market than they are able to sell it to customers at.

This led to several, smaller energy suppliers going out of business over the winter and Ofgem transferred their customers on to other suppliers.

Bulb, the seventh largest supplier in the UK, with 1.5 million customers, went into a ’special administration’ but was too big to be allowed to go out of business and transfer all its customers.

The collapse of more than 30 smaller suppliers has left mostly the big firms still standing.

Scottish Power, British Gas, E-on, N Power, EDF and SSE are now supplying to millions of customers after their provider went bust.

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The biggest driver of the increasing cost of living is higher global energy prices.

As well as the price hike leading to Ofgem raising the energy bill price cap, which will see average bills rise by around £700 a year, the price of oil and gas affects almost everything else we buy.

It means it is more expensive for businesses to pay for electricity and gas to run their premises.

It increases manufacturing costs and it impacts on transport costs to get food and goods from the farms and factories to the distribution centres and onto the shops and on to our plates and in our homes.

Global energy prices have been surging because of an increase in demand as economies around the world and particularly in China and Asia began to open up after the pandemic.

A colder winter in Europe also lead to gas reserves being depleted creating supply issues.

The war in Ukraine will make the situation worse affecting supply elsewhere in Europe and increasing costs worldwide.

It is not however the cause of the rising costs of gas and electricity.