Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?

It's still cold and we’re all thinking about costs as we ramp up the heating and consider ways to keep energy bills low.

But bills are already at record highs, so is there any prospect of energy prices falling in 2023 as wholesale gas prices slide? 

We look at what analysts and the energy regulator Ofgem say about energy prices in 2023 and what you will pay when the current Energy Price Guarantee comes to an end in April.

The Energy Price Guarantee - what are you paying now?

As it stands, most people are now paying the unit price set by the Energy Price Guarantee, which was possibly one of the positive moves we saw in Liz Truss’s and Kwasi Kwarteng’s infamous mini budget.

The Energy Price Guarantee has helped keep a lid on costs to some extent. The guarantee freezes the unit costs for gas and electricity, and means that a household with typical energy usage will pay around £2,500 a year for their energy. 

The current unit rate for electricity under the Energy Price Guarantee is 0.34p kwh, and a standing charge of 0.46p. For gas it is 0.10p kwh and a standing charge of .28p.

The current model of the Energy Price Guarantee will remain in place until April 2023. After that, under new government plans, households will be shifted onto a new version of the Energy Price Guarantee, with a slightly higher cap on the unit price for gas and electricity, meaning a typical average household bill will be around £3,000, instead of £2,500 - so a little less generous than what is in place right now.

In his Autumn Statement (17 November), chancellor Jeremy Hunt said the Energy Price Guarantee was simply too expensive to continue at the current rate, but even at an increase it could help households with costs.

The expectation is that this ‘new’ Energy Price Guarantee will remain in place until April 2024.

Wholesale gas prices have dropped. Will my energy bill be lower?

Earlier this month, analysis at Cornwall Insight predicted that energy prices will fall from July 2023 and the energy cap set by Ofgem, would in fact be lower then the EPG.

Ofgem chief thinks prices may drop sooner - as soon as April in fact.

Predictions from analysts at Cornwall Insight, which regularly puts out estimates for the default tariff cap, suggest energy bills for typical households have fallen to £3,208 from April, decreasing further to approximately £2,200 for July-August (Q3 2023) and September-December (Q4 2023). 

This is £399 lower than previous forecasts, reflecting the recent slide in wholesale gas prices.  

This means, energy prices in the second half for 2023 could be below the Energy Price Guarantee, meaning the help to households will not cost the government any money from July. But we do not know yet what the government will do in terms of what this means for household bills.

But according to Ofgem’s chief, price drops could be seen as early as April - when the current Energy Price Guarantee ends.

Ofgem CEO Jonathan Brearley said in his speech to the Institute for Government, this week "On our current projections, although gas prices remain volatile, the price cap level may fall below the Energy Price Guarantee level in July, and possibly do so as early as April. 

“This will save billions of pounds in the expected public spending on that measure. And although highly uncertain, it is also possible that prices may well fall below this through the summer – which would be welcome news for all customers, both household and business. But even with the reforms we have in place, there is a risk and therefore ultimately a cost that needs to be borne by customers."

A spokesman from Ofgem added that although wholesale gas prices have dropped and may start to filter through as savings for households from April, it was important not to be complacent as not only do prices remains volatile, it is also important to remember that energy costs will be up to four times pre-Ukraine war. 

When will Ofgem set the Energy Price Cap?

Ofgem is set to announce the latest energy price cap for April on 27 February 2023 - we should then know more about what the government plans to do if the cap is set lower than prices under the Energy Price Guarantee and what households and businesses may pay. 

While the Energy Price Guarantee is in place until 2024, Ofgem is continuing to set an energy price cap. This was the ceiling in place on what households would pay before the launch of the guarantee, and is now set on a quarterly basis rather than every six months. 

It doesn’t directly apply to our bills, but serves as an insight into what we would be paying were the Energy Price Guarantee not in place.

The energy price cap is the maximum price per kilowatt hour (kWH) that energy suppliers can charge for energy if you are on a standard or default tariff. Before the Energy Price Guarantee replaced the cap, it was predicted that household bills would hit the £4,000 mark in January 2023. But, bill payers have been protected from this rise with the government help.

It is important to also remember that while the energy market outlook has improved markedly from last year, with a mild winter and higher storage levels in Europe causing substantial falls in wholesale rates, energy prices remain very volatile and prices move daily.

Craig Lowrey, principal consultant at Cornwall Insight, said: “As our price cap forecasts fall yet again, it is only natural that people will begin to assume our predictions will stay on a downward trajectory. But we really don’t have a precedent to look at to work out how the market will evolve in 2023. Wholesale gas prices in particular are searching out a floor and a ceiling level in novel circumstances where we in the UK and Europe are going to be more dependent on liquified natural gas than ever before.

“Right now, positive gas storage and demand reductions in Europe mean the key winter period of concern is looking better. But, whilst today it is “steady as she goes” it is practically inevitable that forecasts will at some point change again as the market wanders about in search of its equilibrium, probably with lower peaks than last year, but not necessarily prices returning to what we define as normal range. The futures market is still showing historically elevated gas prices, both today even with the good fortune of mild winter weather, but also for the summer when European storage refilling season begins.

“We do not know what will happen over the coming months and there is a long way to go before anyone can be certain what the true unit rates will be beyond the summer. So, while declining wholesale markets and cap forecasts may be a reason to feel cheerful, nothing is guaranteed in this new European energy market. Reading too much, too early, into prices falling, could be just as risky as reading too much, too early into prices rising. Policy really needs to be “on notice” of sudden changes, and both elastic and responsive in such an environment.”

Keep energy bills low

To help you keep energy bills low, we have gathered some top tips in our article looking at 13 ways to reduce your energy costs.

And if you're interested in the best ways to improve your energy efficiency and reduce costs, we explored radiators vs electric heaters, heated airers vs tumble dryers, and wood burning stove vs central heating.

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