Why are energy bills going up? UK price increase explained amid rising wholesale gas prices and 2022 forecast

A dramatic increase in the cost of wholesale gas has put pressure on the energy industry

Households across the UK have been warned that energy bills could go up even further in 2022.

Trade body Energy UK have forecast that gas and electricity bills could rise by up to 50% by spring time.

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Wholesale gas prices have soared throughout 2021 leading to more than 20 domestic suppliers biting the dust.

Increased costs have filtered through to consumers with a significant rise to the energy price cap in October.

The energy price cap will be reviewed again in April with many experts expecting it to increase once more.

Here's why energy bills are skyrocketing and why they are forecast to increase even more from April 2022.

Why are energy bills going up?

A dramatic increase in the cost of wholesale gas has put pressure on the energy industry and exposed the cracks.

Wholesale gas prices have increased by 250% since January and rose by 70% in August alone, as the energy crisis gripped firms.

Factors for the prices going up include supply and demand following a particularly cold winter across Europe last year.

This winter chill put pressure on global supplies and gas levels in storage are much lower than normal as a result.

Unseasonably warm weather in Asia saw more households use gas for air conditioning units, while there has been reduced supply from Russia amid reported political moves.

What has been the impact of increasing energy bills?

More than 20 energy firms have gone bust already as smaller companies have struggled to cope with the sustained rise in wholesale gas costs.

Companies shouldered the initial financial weight before an increase to the energy price cap alleviated some of that burden in October 2021.

However, it came too late for some smaller firms, such as Pure Planet and Avro Energy, who could not recoup costs fast enough to plug the holes.

Ministers and Ofgem worked together with struggling suppliers, with many entering the independent regulator's Supplier of Last Resort process.

And, while no-one has been without energy under the process, consumers are being switched over to significantly increased rates or tariffs.

Now it appears the energy price cap, currently at £1,277 a year - a rise from £1,138 a year from October, will go up again in the New Year.

Will energy bills rise again in 2022?

With an increase to the cost of living, generally, households have been hit by rising energy bills, particularly in the second half of 2021.

And, with increased demand over the winter months, many industry leaders are anticipating up to 50% higher bills for consumers in the spring 2022.

Energy UK chief executive Emma Pinchbeck warned that "domestic energy prices are going to go up 45% to 50% in the spring".

"It is looking pretty serious for the spring. This is a system-wide issue now. We are asking for the Treasury in the UK to intervene as others have [in Europe],” Pinchbeck said on BBC Radio 4’s Today programme.

Around 20% of a consumer's energy bill is set by suppliers, said Pinchbeck, with the government setting VAT and other levies on bills.

"A significant proportion of the bill is policy costs. Many other governments across Europe have reduced taxes or VAT on bills.

"In the UK that would save around £90 per customer.

"There are also policy costs on energy bills that government was consulting on removing, on electricity bills primarily, they could bring that forward.

"That saves about £190 per customer," she added.

Good Energy chief executive Nigel Pocklington said the situation was a “national crisis”.

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