What impact will the energy crisis have on UK EV drivers?
With the cost of living crisis taking hold and energy prices at record highs, it can be tricky to work out what this means for electric vehicle drivers. If you’re already an EV driver, what does it mean for your running costs and energy bills? And, if you’ve yet to make the switch, does it still make financial sense to buy an electric car?
We took a look at what’s going on in the energy market and what this means for current and future EV drivers across the UK.
Why is there an energy crisis?
The energy crisis has been dominating the headlines lately and for good reason. Energy prices are at an all-time high and the energy regulator Ofgem has announced an increase in the energy price cap to £3,549 for the average household. So why is this happening and what’s causing the huge price hikes in our energy bills?
It’s a perfect storm of several factors that have caused wholesale gas prices in particular to skyrocket. The global gas market is turbulent and recent events have caused an imbalance between supply and demand, affecting wholesale gas prices.
Higher energy demands in Asia have diverted global gas supplies and recent events in Ukraine have led Russia to cut its gas supply to Europe. Add to that a huge fire in a Texas plant limiting European gas imports, and a particularly frosty winter in 2021 eating into our gas reserves. All this combined and it's clear why gas demand is outstripping supply.
Our dependence on expensive polluting gas is why we're pushing so hard for a renewable revolution. As we generate more electricity from renewable sources like the wind and the sun, the UK will become less exposed to changes in gas prices. We had unusually low wind levels in 2021, which resulted in lower than average wind production. The lack of sunshine resulted in low solar generation, too. Not to mention, some nuclear power plants in the UK closed for maintenance, so nuclear power generation wasn’t at its best either.
All of this has led to an increased demand for gas that’s pushed up wholesale prices to unprecedented levels and hit customer energy bills hard.
You can find more resources and blogs covering everything about the energy crisis over in the Energy Crisis information hub from Octopus.
Why are electricity rates rising?
In the UK, around a third of our electricity is generated by burning gas. Most of that gas is imported from other countries like Norway, Russia and the United States. Due to the UK’s reliance on imports, the country is much more susceptible to global events that affect wholesale gas prices.
This, coupled with lower than usual renewable and nuclear generation, has caused greater demand for gas to generate electricity. This leads to gas being more expensive which, in turn, means electricity rates are also rising.
You might be thinking, "why doesn’t Ofgem just reduce the price cap?" Unfortunately, our energy bills are largely made up of wholesale costs that are at the mercy of the global market. This means high wholesale costs lead to higher retail prices for customers and an overall higher price cap.
How will the energy crisis affect EV drivers?
The energy crisis does mean that the cost of charging up your electric vehicle has increased. Both charging at home and on the public network is more expensive this year compared to 2021.
You might be thinking that EVs are too much of an expense in the current energy climate. But, remember that it’s not just energy prices that have increased. The price of petrol and diesel has also spiked. Fuel prices are at their highest for some time, with diesel recently almost hitting the £2 per litre mark. This makes traditional fuel-powered cars more expensive to run, too.
Despite electricity prices going up, electric cars are still cheaper to run than their petrol or diesel counterparts. So, you could still see savings of around £1,226 a year by going electric. It’s also worth remembering that, as well as cheaper running costs, the cost of ongoing servicing and maintenance of an electric car is also cheaper. You'll also receive sizable tax benefits if you take an electric car through a salary sacrifice scheme and pay no clean air zone charges or congestion charges, either. This makes going electric still a good option to save money in the long run.
How will my energy bill change if I drive an EV?
Charging at home is still the most cost-effective and convenient way to recharge your electric car. With energy prices rising, however, this will impact your home energy bill, too. The cost of home charging will be added to your home energy bill so it’s important to make sure you’re on the best energy tariff to keep your costs as low as you can.
Choose a specially designed EV energy tariff so that you can take advantage of super low-cost rates when you plug in overnight. Smart tariffs like Intelligent Octopus Go can also pair with your home EV charger and time your charge so that you only use the cheapest and greenest energy. Simply enter into the app how much charge you want and what time you need the car ready for, and Intelligent Octopus Go takes care of the rest. You can read more about how EV tariffs work for electric cars in this guide.
Is driving an EV still the better choice?
Although we are seeing energy bills rising and an electric vehicle might seem like an expensive idea, don’t be put off. With energy prices rising across the board, in reality, EV home charging is still better value compared to filling up the fuel tank.
Together with lower ongoing maintenance costs, tax benefits and the end of new fuel-powered vehicle sales by 2030 – not to mention the environmental benefits – going electric is still the most affordable and future-proof choice.
It's easy to make the switch with Octopus Electric Vehicles. With all of the models on the market to choose from, whether it’s on a personal lease, business lease or our forward-thinking salary sacrifice scheme, we’re sure to have a car and a plan to suit your needs.