Wholesale energy costs and household bills are on the rise. How will this affect EV drivers?
In this article
*Updated 4th July 2022
From April 1st 2022, Ofgem’s highest ever price cap of 54% per year set in, applying for those on standard tariffs, default tariffs and out-of-contract tariffs.
Rather than an absolute limit on your bills, the cap applies to your rates – or the amount you pay per unit of electricity or gas used, in addition to the standing rate for grid connection. So, for example, a home using a medium amount of gas or electric – defined as 12,000kWh gas and 2,900kWh electricity a year – will be experiencing a rise in rates by around £693 per year, or £58 per month. It could be as much as £130 per month if you aren’t paying via direct debit.
The increase in the cost of living has swiftly taken effect: a consumer with an average dual fuel default tariff paid through direct debit has seen an increase of £693 of their annual energy bills. By October, energy bills could increase to approximately £2,800.
What does your energy bill consist of?
Your energy costs will be dictated by multiple things…
50% of your bill consists of the wholesale cost of gas and electricity.
And the remaining half is a mixture of distribution, transmission chargers, VAT, environmental costs, meter provision and your supplier’s costs, plus profits.
Why are electricity rates rising?
The increase is down to several factors, but rising global gas prices have had the biggest impact.
Wholesale gas prices have risen by 250% since January 2021, causing massive market turbulence – with 28 UK energy suppliers going out of business last year. Nearly the same number of customers were affected by energy companies going bust in September 2021 than were between 2016 to 2020.
Around a third of electricity in the UK is generated from the burning of gas. From 2004/05 the UK began importing more gas than it was producing, and as a result has become more influenced by global events – particularly those affecting oil prices. And adverse international events linked to oil were not in short supply last year. The Netherlands saw reduced gas production, there were lower imports of gas from Russia, and increased energy demands in Asia led to liquid gas ships diverting their supplies there instead of Europe.
Planned maintenance on certain power plants has also caused issues, reducing the nuclear power outage of the UK by a fifth.
Additionally, the British weather has led to a shortfall in renewable energy sources. Last year was one of the least windy on record – generating less wind power than usual. And it was not particularly sunny or bright for solar generation. The winter of 2021 in Europe was particularly cold, which meant households relied upon gas reserves to heat our homes.
Increased electricity usage during covid restrictions also contributed to an imbalance between supply and demand.
How will electricity costs be affected?
Since April 1st 2022, electricity costs per unit have been capped at 28/kWh, whilst standing chargers are limited to a fixed daily rate of 45p, an increase from 25p.
In recognition of the persisting increase in the cost of living, the Government are supporting households. In May, Chancellor Rishi Sunak announced a non-repayable £400 energy rebate that you can expect in the autumn. You will be eligible for this rebate if you have a domestic electricity connection.
Will those on eco tariffs be affected?
Those on eco tariffs from green energy suppliers will unfortunately also see price increases – given that the wholesale price of electricity is strongly linked to gas prices.
All energy providers, including eco suppliers, source electricity from the National Grid. The energy distributed by the National Grid is generated from a mixture of renewable and fossil fuels sources – with gas fired power plants still supplying a large amount of this electricity. And it cannot be sorted, meaning that all customers powered by the grid receive an energy mixture.
Octopus estimated that the new energy cap may result in an additional cost of £16 per month (£192 per year) for those on standard variable tariffs.
In May, The Guardian reported that the cost to charge an electric vehicle at home has increased by 43% for some, with on-the-road recharging rising by 25%. Whilst in 2021 an EV covering 7,400 miles per year that was recharged mainly overnight cost £174 to recharge, as of April 2022 the EV cost £249 in the same charging context.
So yes, EV charging costs will increase for many. But the cost of petrol and diesel are also at the highest they’ve been for eight years. A glance at the latest UK average prices confirms the fuel price increase: unleaded petrol is now priced at 186.59 pence per litre, super unleaded at 196.33 per litre pence, and diesel at 192.48 pence per litre.
There are tariffs designed specifically for the purpose of electric charging – which enable drivers to take advantage of low cost overnight rates (with potential savings of £1000 per year versus fuelling up with petrol). Although it should be noted that many providers are offering them at present.
In light of these price increases, EVs still appear to be an attractive option. A survey of over 2,000 UK motorists by Motor Ombudsman revealed 25% of participants will be switching to EVs in the next three months.
Considering the total cost of EV ownership savings, and the environmental price, it is still very much a worthwhile decision.
Mer’s EV charging prices
Despite the new price caps, Mer is introducing lower rates for registered customers and keeping our prices as low as we can.
Our mission as a business is to support efforts for a greener future.
We are not a private equity funded company, and instead wish to grow in a sustainable manner, and are committed to the market long-term.
We are keen to see EV charging infrastructure developed with driver needs at the forefront – and so we’re investing in the UK public EV charging infrastructure, buying best in class hardware, offering multiple charging methods, providing 24/7 customer support and developing roaming partnerships.
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