Rates and tariffs for domestic energy supply are directly related to the cost of wholesale gas and electricity on the global market. When domestic utility suppliers buy energy on the global market at wholesale prices and when those prices go up, your domestic utility tariffs reflect this. Wholesale gas and electricity prices peak and trough according to supply and demand so when production is low and demand is high, the price of wholesale gas and electricity will inevitably be at a premium. The trickle-down effect of this is higher bills for homeowners.

One key reason for recent increasing demand on the global wholesale market is the growth in demand for energy from developing nations, such as China and India. As their industrial domesticity evolves, so too does their need for fuel. When global reserves and production cannot accommodate this increase in demand, wholesale costs escalate as energy suppliers outbid one another on limited resources.

As the UK imports around 40 per cent of its gas from the global marketplace, the potential for dramatically increasing costs to be passed on to the customer is alarming. However, while it may come as cold comfort to many that domestic energy suppliers actively work to protect their customers from rising costs, it may come as a surprise just to what extent. For example, during an 18 month period, wholesale costs of gas and electricity rose by 186 per cent, yet some domestic energy suppliers managed to only pass on 27 per cent of that to customers.

Yet more evidence of the ways in which energy suppliers work to protect their customers can be found in their avoidance of price spiking. Although a spiked pattern of tariff increases would better represent the wholesale market costs of energy, your energy supplier will attempt to smooth the curve, thus helping you to avoid alarming increases in rates.

Of course, higher bills are the result of increasing costs on the wholesale market, but there are ways in which both you and your energy supplier can work to save you money. Your energy supplier may offer a range of discounts to reward you for using a certain tariff, paying by monthly direct debit, or taking both your gas and electricity supply from the one company.

As for proactively keeping bills down at home, you could benefit by becoming more conscious of when and for how long you have your central heating, lighting and hot water switched on during the day. By switching your old light bulbs to energy saving ones, which use up to 80 per cent less electricity that conventional incandescent ones, you could see significant savings on your electricity bills. You could also see savings on your utility bills by improving loft insulation, which can help you to cut down on your central heating use, during the winter.

Although overall energy prices are dictated by supply and demand of wholesale gas and electricity, there are little savings to be made, both at home and with your domestic energy supplier, which can add up to significant cost cutting on your domestic bills.

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