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Energy price crunch – should students be worried?

Energy price crunch – should students be worried?

Syndy Liew

25/02/2022

Reading time: five minutes

Energy price cap

Earlier this month, Ofgem, Britain's energy regulator, announced a 54% rise in the energy price cap from 1 April 2022. The cap is reviewed twice a year.

The energy price cap prevents utility companies from charging their customers an unreasonable price by setting the limit on a unit of gas and electricity that a utility company can charge an average customer in the UK per year.

This means that starting from 1 April, consumers on a standard variable tariff will see an increase of 54% or an average of £693 per year in their energy bills.

As someone looking for accommodation for the next term, I was relieved that I chose bill-inclusive accommodations to save myself from the energy bill rise.

Given the recent energy crisis followed by the energy bill rise this coming spring, would students be better off with bill inclusive accommodations? How would the energy crisis affect consumers and businesses?

What is happening?

An energy crunch/crisis can be defined as any significant shortfall in the supply of energy resources to an economy.

According to an article by the House of Commons Library, an imbalance of supply and demand caused by a series of factors contributed to the rise in price in the UK and globally.

Post-pandemic recovery

Economies recover from pandemic-related restrictions causing climbing wholesale gas prices worldwide, driven by the return of global gas demand and reduced imports to Europe.

Weather event

A cold and long winter drives the demand for gas to keep households warm. There has been a lack of strong offshore winds in Europe this season and issues with a major grid interconnector has contributed to a need for greater use of gas power stations.

As gas is one of the fuels used to generate electricity, electricity prices has also increased following a record rise in global gas prices.

Effects of the energy crunch in the UK

If they haven’t already, consumers should expect to face rising energy bill prices, following the energy price cap review in August 2021. This year’s energy price cap will not apply to those currently on a fixed-term energy tariff (though they will be switched to a standard variable tariff at the price cap level once the fixed-term expires). Also, Ofgem has confirmed that those who use Ecotricity, Good Energy and Green Energy UK will also be exempt from the energy price cap.

Energy suppliers

According to Energy UK, over 20 energy suppliers in the UK have exited the energy market since August 2021. These primarily consisted of smaller energy supply companies whose business models couldn’t insulate themselves against the increase of wholesale gas prices.

Due to Ofgem's energy price cap, they couldn’t pass the rising cost of supply to customers so they had to sell energy to customers at a higher price than they were buying which was terminal to their business.

Due to a reduced number of suppliers, customers were left with different, and usually more expensive providers after being transferred across to new suppliers by Ofgem (the market regulator) through the “supplier of last resort” process. 

Looking forward

For consumers the government has put forward a series of measures to help alleviate the rising energy prices.

Repayable energy bill discount

Households will receive an upfront discount on bills worth £200. The energy suppliers apply the discount on consumers' bills starting from October 2022. Consumers will then pay this “loan” back at a rate of £40 a year over five years from 2023. 

Disadvantages

The repayable discount will only arrive in October 2022, which is when Ofgem is due to revise its energy price cap. There’s a possibility that the energy price may be even higher if the trend continues, making the impact of the discount arguably marginal. 

For students, there aren’t clear guidelines on how the recovery system would work. Many are left wondering, if there’s a tracking system for students who move to different accommodations and different energy providers each year. If so, would this apply to international students?

Rebate on council tax bills

Council taxpayers in England in bands A to D would receive a rebate of £150 from their bills in April. Unlike the repayable discount, this will not have to be paid back.

As full-time students are exempted from paying council tax, they will not be eligible for this rebate. Nevertheless, students may be eligible for support from a separate discretionary funding pot of £144 million for those who don’t pay council tax. 

Warm Home Discounts Scheme

The government has confirmed that they would be continuing with existing plans to expand eligibility for the Warm Home Discount scheme by almost a third to benefit three million households. Those eligible for this scheme will receive an assistance of £150. 

There have also been calls to remove the 5% VAT rate on household energy bills and impose a windfall tax on North Sea oil and gas producers to tackle the rising living cost. 

There is no definitive answer as to how long the high energy prices would last due to the volatility of the energy market. Hence, it is highly likely that stabilising the energy market is becoming one of the key priorities for the government this year. 

It may be too early for students to experience the impact of rising energy costs, especially those living in university halls. This is because you have all your bills taken care of.

Nevertheless, it might be a good idea for universities and student unions to ensure that students are aware of how this would impact them by providing clear guidelines for students seeking advice or assistance on rising energy costs. 

To find out more about the future of energy companies, read this LCN Blog: ‘Are energy suppliers about to collapse.’