This is probably not the first post you’ve read about the hike in the OFGEM price cap – but read on for a bit of contrarian view on this crisis.
This is the holiest day in the Jewish calendar and this year on the 5th of October, we’ll all probably turn our heating on for the first time since Summer and we’ll all feel the heat of raging high gas and electricity prices. But Yom Kippur is better perhaps remembered for the Yom Kippur War in 1973 which is where my basic economics course jumped back in after a brief introduction to Riccardo and Smith – this was the day that the modern economic world was born for it signalled the end of the world of cheap energy for the world and the beginning of bad things that were to come.
Just as we have a war in Ukraine now which results in human misery and suffering – the worst effect is if it costs too much for us to fill up our cars with petrol and now light and heat our homes. We’ll all stand in solidarity with Ukraine – but wince when we see our next power bill.
OFGEM Price Cap
Once the work of evil socialists, the OFGEM price cap is the only thing that is keeping the price of domestic gas and electricity prices rising up the actual cost of supplying gas and electricity to homes. Suppliers are losing money and dropping like flies and the whole system is in a complete mess.
So today the price cap for October was announced and the good news is that the standing charge for gas and electricity will go up by less than inflation! That means you’ll be saving money in real terms. An extra penny a day is nothing. Woo hoo!
The flipside is that electricity prices almost double and gas prices more than double. It’s a crappy situation for everyone but there’s no need to moan about it. The Ermine has a great post this week all about it – well worth a read.
A cursory glance at the graphs will tell you that this isn’t the end and we got off lightly.
First of all, you all knew that this was coming and you had time to do something about it. And it’s not like the old days where you can swap your crappy standard rate deal with a major company and save money by getting a new cheap deal with an upstart company – there is no alternative to the price cap now, so you must reduce your consumption to save money.
That’s the silver lining here, the Yom Kippur war led to a massive shift in energy policy and introduced policies like minimum fuel efficiencies for cars in the USA. The solutions will seem obvious in hindsight.
It’s not just enough to say that individuals can make their own decisions. The same thing should exist now for us – how can we actually reduce our energy consumption – and if you can’t then the government shouldn’t bail you out.
What will GFF do?
First of all, the new tariffs will mean our estimated annual gas and electricity bill will jump to over £5,000. Luckily I did a nifty trick called “saving my money” meaning I can pay my bills without moaning about it. Not everyone is smart enough to save their money but if you are an adult and in control of your own life, then you’ve nobody to blame but yourself.
I keep a record of energy usage and can use this to predict what it will cost us and what the impact is. No surprises for me.
Second of all, I installed additional loft insulation earlier this year and got a heat pump tumble dryer. That should save me about £250 a year now. The return on the tumble dryer is now over 100% IRR! Loft insulation is about 50%. No-brainer gains.
Third of all, I’ve moved my home office upstairs when our Ukrainian guests arrived. They might leave soon and I’ll stay upstairs. Heat rises and we’ll essentially keep the downstairs of the house cold when not in use.
Forth, we’ll see if we can have a reciprocal arrangement where we visit friends for a few days or so at Christmas. Turning the heating off at home for a few hours when out makes sense but the gains are small. Since our daily heating bill will be around £20 a day, switching off for a few days will save loads.
Fifth, is putting cling film on our windows (single pane sash and case0 a no-brainer? I’ll see if it’s as simple as that.
Sixth, dress warmly and heat the rooms that we are in. Hot water bottles are the way forward!
Things Can Only Get Better?
It’s impossible to hear that song without feeling like you were lied to… But it does feel like things are getting worse. It turns out that we didn’t fix the roof while the sun was shining. Everyone is broke and everyone is on strike. There are rats in the street and rubbish everywhere, nobody can feed or heat themselves.
On the bright side, my house went up by 13.0% last year – more than enough to cover my heating bills. “Let them eat equity” I say!
Positioning To Gain
I am perhaps one of the few people in the UK to actually benefit from these high energy prices (DIY Investor is another, whose views are worth reading) since I have invested for years in renewable energy investments. Prices go up, profits go up and I’ll pay for my bills with the dividends. It seems like a very sensible strategy to me – and broader so, for the UK – except the easiest way for the UK to cut its dependence on foreign energy in the next 2 years would be to significantly ramp up ONSHORE wind – and that is explicitly not happening. In fact, rejection of renewable energy projects is increasing. I’m giving myself whiplash from all my head shaking.
Enough Cap, I’ll get my Coat
There’s always a gulf between how you’d like the world to be and how it is. It seems like that gap is becoming a gulf right now. Things aren’t getting better – but I’m not going to be personally impoverished by what’s going on in fact it’s a money maker for us.
So this winter, take control of your inner thermostat and dial down the moaning – do something about it instead. Cutting our energy consumption was something we’d have to do anyway – this is now an every better opportunity to start (and if you don’t, remember the next price cap comes into force in January and it’ll be even higher still!)