How will rising energy prices affect electric vehicle drivers?

UK energy regulator Ofgem has announced changes which could result in up to 50% higher household energy bills – but there’s some good news for electric vehicle drivers.

What is the energy price cap?

Energy price caps are administered by government regulator Ofgem and designed to ensure fair pricing for gas and electricity. Rates are reviewed every six months based on wholesale energy prices, which limits the amount that utility companies can charge for household bills while also enabling them to pass on ‘reasonable costs’ and stay in business [1].

Ofgem publishes new rates as annual figures for a typical household energy bill. There are separate caps for pre-payment meters and ‘default tariffs’, where a customer’s fixed rate contract has ended, or they’ve moved supplier because their previous utility company has folded [2]. In both cases, prices have almost doubled compared to winter 2020/21, and are more than 50% higher than the rates introduced last October, as shown below.

Period Default Tariff Prepayment
From 01/10/2018 £1,104 £1,143
From 01/04/2019 £1,217 £1,256
From 01/10/2019 £1,143 £1,182
From 01/04/2020 £1,126 £1,164
From 01/10/2020 £1,042 £1,070
From 01/04/2021 £1,138 £1,156
From 01/10/2021 £1,277 £1,309
From 01/04/2022 £1,971 £2,017
Source: Ofgem [3]

The good news for households on fixed rate tariffs is these changes don’t apply. However, with fewer end-of-contract deals available and 29 suppliers collapsing since January 2021 [4], they affect more people than usual. Ofgem’s said in its previous announcement last October that the rates applied to 11 million customers [5], compared to 22 million for the latest set. That’s almost a third of the UK population.

Why are electricity costs rising?

The biggest challenge is wholesale gas prices. Global demand is outstripping supply, and costs have gone up dramatically. Ofgem says a unit of gas (called a ‘therm’) cost £1.80 at the start of winter 2021 and peaked at £4.00, compared to a seasonal norm of 50p, and that gap is expected to widen through the summer [2]. This also affects electricity prices, as 37.9% of the UK’s supply was generated using gas in 2021 [6].

Issues with gas supply have been compounded by other challenges. The UK is a net importer of electricity with France as its biggest supplier [7] – a second interconnector between the two countries went live at the start of 2021 [8]. This made it susceptible to restricted supply when EDF shut down two nuclear reactors in December [9], further inflating energy prices.

For utility companies, the cost had become unsustainable. Wholesale energy prices were around 7.4p/kWh when Ofgem announced the previous price cap in August 2021. By December this had peaked 24.1p/kWh [10], of which a maximum 21p/kWh could be charged back to consumers [11]. It’s why so many of them have folded recently.

How might this affect electricity costs?

The new rates come into effect from 1st April 2022, with some significant rises in energy costs as a result [2]:

  • Electricity costs per unit will be capped at 28p/kWh (kilowatt-hour), up from 21p/kWh since October.
  • Standing charges, which are a fixed daily rate regardless of usage, will be limited at 45p, instead of 25p under the old rates.

For context, the average cost of electricity in 2021 was 18.5p/kWh [12].

How will rising energy prices affect electric vehicle drivers?

Charging is already becoming more expensive. Public networks BP Pulse and InstaVolt announced price rises in November to cover the cost of energy [13, 14], and HMRC has increased the Advisory Electric Rate (AER) from 4p/mile to 5p/mile for the same reason [15].

However, with a higher price cap for domestic energy, the AER might not be enough to cover the additional costs if drivers are on a default tariff. Some examples are shown below.

Vehicle Cost per mile
2021 average
(18.5p/kWh)
From April 2022 (28p/kWh)
Fiat 500 Icon Hatch 4.2p 6.3p
Renault Zoe R135 GT-Line 5.3p 8.1p
Kia e-Niro ‘3’ 64kWh 4.7p 7.2p
Volkswagen ID3 Life Pro 4.6p 7.0p
Audi e-tron Sport 50 quattro 6.9p 10.5p
Tesla Model 3 Long Range 4.4p 6.7p

 

For a typical mid-size electric vehicle (averaging 3.5miles per kilowatt-hour), the energy price cap amounts to an annual increase of £274 (+51%) compared to the 2021 average, based on 10,000 miles of driving. It could also leave some company car drivers out of pocket, unless the AER is adjusted before April.

Will this mean an electric vehicle is more expensive than a petrol or diesel car?

No. Petrol and diesel prices are also on the rise, albeit not as much as electricity. According to the latest AA figures, both fuels have gone up by around 27% between December 2020 and December 2021 [16].

Based on the applied average fuel efficiency figures HMRC uses to calculate advisory fuel rates [15], petrol and diesel costs can still be twice that of an equivalent electric car.

Petrol cars:

Engine size Efficiency Cost per mile
December 2020 (115.1p/litre) December 2021 (146.1p/litre)
Less than 1,400cc 52.7mpg 9.9p 12.6p
1,401-2,000 44.9mpg 11.7p 14.8p
More than 2,000cc 30.0mpg 17.4p 22.1p

Diesel cars:

Engine size Efficiency Cost per mile
December 2020

(118.5p/litre)

December 2021

(149.6p/litre)

<1,600cc 63.6mpg 8.5p 10.7p
1,601-2,000cc 51.3mpg 10.5p 13.3p
>2,000cc 42.1mpg 12.8p 16.2p

Based on 10,000 miles of driving per year, a driver in a mid-size petrol car would be paying an extra £313.87 per year for fuel, or £275.60 for a similar diesel vehicle. However, annual fuel costs (£1,479.25 and £1,325.72 respectively) are twice that of the electric car (£808.39).

Where can I find out more about fuel costs?

LeasePlan is offering a free online tool which can show how much an electric vehicle will cost, including adjustable values to reflect your home energy tariff. To find out more, visit our EV Cost Per Mile Calculator.


REFERENCES:

[1] Ofgem. (2022). Default tariff cap level: 1 April 2022 to 30 September 2022. [online] Available at: https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-april-2022-30-september-2022 [Accessed 4 Feb. 2022].

 

[2] Ofgem. (n.d.). Check if the energy price cap affects you. [online] Available at: https://www.ofgem.gov.uk/information-consumers/energy-advice-households/check-if-energy-price-cap-affects-you [Accessed 4 Feb. 2022].

 

‌[3] Ofgem. (n.d.). Default Tariff Cap. [online] Available at: https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/default-tariff-cap [Accessed 4 Feb. 2022].

 

[4] Ofgem. (2022). Price cap to increase by £693 from April. [online] Available at: https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april [Accessed 4 Feb. 2022].

[5] Ofgem. (2021). Record gas prices drive up price cap by £139 – customers encouraged to contact supplier for support and switch to better deal if possible. [online] Available at: https://www.ofgem.gov.uk/publications/record-gas-prices-drive-price-cap-ps139-customers-encouraged-contact-supplier-support-and-switch-better-deal-if-possible.

‌[6] National Grid ESO. (2022). ESO Data Portal: Historic GB Generation Mix – Dataset. [online] Available at: https://data.nationalgrideso.com/carbon-intensity1/historic-generation-mix/r/historic_gb_generation_mix [Accessed 4 Feb. 2022].

[7]. Department for Business, Energy & Industrial Strategy (2022). Imports, exports and transfers of electricity (ET 5.6 – quarterly). [online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1043309/ET_5.6_DEC_21.xlsx  [Accessed 4 Feb. 2022].

[8] National Grid Group. (2021). IFA2: low-carbon electricity now flowing through second UK-France interconnector. [online] Available at: https://www.nationalgrid.com/stories/engineering-innovation-stories/ifa2-low-carbon-electricity-now-flowing-through-second-uk [Accessed 4 Feb. 2022].

[9] EDF France. (2021). Reactors of the Civaux and Chooz nuclear power plants: replacements and preventive checks on parts of the piping of a safety system. [online] Available at: https://www.edf.fr/en/the-edf-group/dedicated-sections/journalists/all-press-releases/reactors-of-the-civaux-and-chooz-nuclear-power-plants-replacements-and-preventive-checks-on-parts-of-the-piping-of-a-safety-system [Accessed 4 Feb. 2022].

[10] Ofgem. (2022). Wholesale market indicators. [online] Available at: https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators [Accessed 4 Feb. 2022].

[11] Ofgem. (2021). Default tariff cap level: 1 October 2021 to 31 March 2022. [online] Available at: https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2021-31-march-2022 [Accessed 4 Feb. 2022].

[12] Department for Business, Energy & Industrial Strategy. (2022). Average unit costs and fixed costs for electricity for UK regions (QEP 2.2.4) [online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1043383/table_224.xlsx [Accessed 4 Feb. 2022].

[13] InstaVolt. (2021). InstaVolt issues statement in response to unprecedented rise in wholesale energy prices. [online] Available at: https://instavolt.co.uk/statement-in-response-to-energy-prices/ [Accessed 4 Feb. 2022].

[14] Autocar. (2021). UK EV charging firms raise prices as energy crisis bites. [online] Available at: https://www.autocar.co.uk/car-news/business-environment-and-energy/uk-ev-charging-firms-raise-prices-energy-crisis-bites [Accessed 4 Feb. 2022].

[15] HMRC. (2022). Advisory fuel rates. [online] Available at: https://www.gov.uk/guidance/advisory-fuel-rates [Accessed 4 Feb. 2022].

[16] The AA. (2019). Latest petrol and diesel price report. [online] Available at: https://www.theaa.com/driving-advice/driving-costs/fuel-prices [Accessed 4 Feb. 2022].

 

Matthew Walters

Matthew Walters

Matthew Walters is Head of Consultancy Services and Customer Value at LeasePlan UK, and has been with LeasePlan for over 14 years.

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