Will energy prices fall 2023?

Falls in wholesale energy prices have fed through into a lower energy price cap, but will that continue?

While many of us will have taken measures to keep energy bills low during the winter, we have now had a further helping hand courtesy of the reduced energy price cap.

Ofgem, the energy regulator, has cut the price cap to £2,074 as a result of reductions in energy costs on the wholesale markets - which will see the average typical household bill drop by £426 (17%). 

But what does that mean for your energy bill, and what is the outlook on energy prices in 2023?

The new energy price cap - prices to drop in July

The latest energy price cap means your bill will fall from July, taking the average typical bill to £2,074 - down from £2,500 that  we are currently paying under the Energy Price Guarantee. 

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. It is set four times a year, and is based on movements in the wholesale markets.

The price of energy in the wholesale markets hit such highs last year that the government opted to undercut the price cap, launching a separate Energy Price Guarantee (EPG).

This also froze the unit cost of gas and electricity, and meant that a typical household would spend around £2,500 a year for their energy rather than the £3,000 plus we would have been paying if left to rely solely on the Energy Price Cap.

Up to now the cap has always been higher than the EPG, but with this latest update it has taken over as the main dictator to suppliers over the maximum they can charge us for our energy use.

As a result, between July and September the cap for typical use will stand at £2,074, with a new cap to be announced for the final three months of the year.

Ofgem noted that while the new price cap represents a drop from previous caps ‒ and from the EPG ‒ it is nonetheless above the levels households would have been used to paying before the crisis took hold.

What will happen next with energy prices?

The energy crisis led to suppliers pulling their fixed energy tariffs, which is why most of us are now on tariffs covered by the Energy Price Cap. Fixed tariffs have long been a way to keep energy bills lower, as well as provide some certainty over what your outgoings on energy will be, though virtually no suppliers currently offer them.

There has been some speculation that the lower wholesale energy costs will encourage suppliers to be more competitive, and launch fixed tariffs once again.

Alice Haine, personal finance analyst at Bestinvest, said: “One glimmer of hope is that the lower energy price cap could see the re-emergence of fixed-price tariffs, where the unit price for the gas and electricity someone consumes does not change for a set period. 

“While there are no fixed deals available right now, that may change in the days and weeks ahead if suppliers start offering deals though any decision to fix needs careful consideration.”

Even if they do not, the current expectation is that the Energy Price Cap will be lowered once more for the final quarter of the year. 

The analysts at Cornwall Insight have predicted that the price cap for October to December will be set at £1,960 ‒ more than £100 below its new level ‒ before being increased to £2,026 for the first quarter of 2024.

Jonathan Brearley, CEO of Ofgem, said: “In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”

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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