It is true that the increase in gas prices will affect not only the heating costs of residents, but also a wider basket of communal services, such as electricity costs. Justina Bagdanavičiūtė, Head of Financial Literacy at Swedbank, shares this opinion.
According to her, expenses for communal services in the country’s household budgets make up a significant part – about 9 percent, so any upward movement of prices related to housing maintenance may mean greater financial stress for part of the population.
“Recent circumstances dictate exactly such a scenario. As European countries predict higher inflation due to expensive oil and gas, the European Central Bank may increase the base interest rate. This could mean higher payments for some housing loan holders in the near future,” J. Bagdanavičiūtė is quoted as saying in the report.
However, the effect of increased gas prices does not end there – the State Energy Regulatory Council (VERT) predicts that if the war in the Middle East continues, the price of one cubic meter of gas for small household and small business users could rise by about 12 cents from July.
“The prices of centralized heating in Lithuania are quite stable, as a significant part of the heat is produced from biofuel. Therefore, consumers of this segment are less sensitive to short-term fluctuations in energy prices in international markets.
At that time, residents using individual gas heating are directly exposed to changes in market prices. After revising the gas tariffs, the price increase is reflected in the final bills quite quickly,” the representative of Swedbank notes.
Will touch more than one expense line
However, the rise in gas prices does not only affect heating prices. According to J. Bagdanavičiūtė, natural gas significantly affects the price of electricity on the exchange, because it is often used as a “marginal” source of energy that determines the final price for the entire market.
This means that even if some electricity is produced more cheaply, for example from renewable sources, the final price is still determined by the most expensive source of production needed at the time. In practice, these are often precisely gas-fired power plants.
The effect of the price of gas on electricity rates is particularly strong during the cold season, when the demand for gas increases as the demand for heating increases, while at the same time the production of solar and wind energy decreases. As a result, more gas is used in the electrical system.
In such a situation, gas prices do not become a factor of a single bill, but of a larger part of the basket of utility costs. When added to the possible rise in interest rates, this means for households that even several lines of expenses related to housing maintenance will increase at the same time. Their combination has a much greater impact on the budget than each one individually.
How can you prepare for it?
In the context of rising energy prices, the most important thing is not to guess how much they will rise, but to prepare for the fact that the bills may increase. In practice, this means several relatively simple but important decisions.
“On average, utility costs account for almost a tenth of the household budget, but in individual cases this share can be much higher. Therefore, it is first of all useful to know exactly the costs of maintaining your home. If they already “eat up” a larger part of your income, a small increase in prices can become very noticeable.
In this case, it is worth predicting in advance how the budget could be rescheduled in order to be able to compensate for the increase in expenses. Also, consider what other decisions can be made that would allow controlling the risk of cost increases. For example, choosing a fixed-rate electricity plan with a more flexible termination option, investing in your own solar power plant, taking care of house renovation and increasing energy efficiency, or making other decisions,” says J. Bagdanavičiūtė.
Secondly, it is important to accumulate at least a minimum financial reserve. The heating season means higher bills every year, so even a small amount set aside in advance helps avoid financial stress.
“Finally, it is worth reviewing daily habits – how much and how much electricity or heating is used. Small steps are often underestimated in everyday life, but in the long term they can significantly reduce bills,” concludes Swedbank’s Head of Financial Literacy.
