Are UK energy prices going down in 2025?

Energy prices are set to bring a cost of living shock to millions of households this winter.

On Tuesday (1 October), the Ofgem energy price cap soared 10% after big increases to wholesale prices. The effects of this are set to be even more pronounced for those on low incomes, including pensioners who will miss out on the Winter Fuel Payment.

The change will wipe out recent falls in the price cap. To ensure you don't get overcharged for your gas and electricity usage, it's worth taking an energy meter reading. You should do this even if you have a smart meter.

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While there are some fixed energy deals that can shield you from the price hikes, taking one out could be a risk given the price cap might go down again in 2025. The Ofgem cap sets the maximum your energy supplier can charge you for unit rates (per kilowatt hour, or kWh) and standing charges. Your actual gas and electricity bill will depend on how much energy you use.

So, can we expect energy prices to go down in the new year? We've looked at the latest predictions about where bills are headed.

Will energy prices go down in 2025?

According to the latest price cap predictions from energy consultancy Cornwall Insight, bills could go down at the start of 2025. The company's forecasts are respected given they have often proved to be accurate over the last three years.

Cornwall's latest research, published on 30 September, said a "slight decrease" could be on its way when the January to March 2025 cap is announced in November. This follows its previous prediction that bills would rise again in the new year.

It has forecast that there will be a 1% (£1.67 a month on average) fall in gas and electricity costs compared to the October to December 2024 cap. This would mean the typical bill would still be around £11 a month more expensive than it was between July and September.

The consultancy gave several reasons for this marginally better outlook. These included the EU meeting its gas storage targets for this winter, forecasts of a good global supply of liquefied natural gas (LNG), and improved confidence about imports on wholesale energy markets.

International factors have a big bearing on UK prices because the country heavily relies on energy imports. So, confidence levels regarding supply on global markets can either raise or reduce wholesale prices, which then feed into our domestic bills. Things remain precarious because of the Russia-Ukraine war - and the threat of further escalation in the Middle East.

Looking further ahead into 2025, Cornwall said it expected prices to fall gradually. However, it warned that a return to pre-energy crisis levels still remained some way off.

Separate predictions from EDF suggest the next price cap is likely to remain relatively flat. It has projected a £4 a year rise to £1,721 in the New Year due to the aforementioned geopolitical tensions and the unpredictable nature of winter weather. It updates its predictions weekly on its website.

The supplier expects prices could remain high for the April 2025 cap, falling just 1%. However, it says its confidence in this prediction is currently "very low".

EDF's head of pricing and valuation in wholesale market services, David Edmonds, said: “We’re still seeing a lot of volatility in the global wholesale energy markets, which means our latest forecast has come in slightly higher than prices last week, at £1,721 for January to March 2025.

"This is due to a couple of factors including tensions in the Middle East, as well as between Russia and Ukraine, and unpredictable weather over the coming months. Given these uncertainties, it’s not clear yet exactly where prices will go in the coming months before the window for Q1 prices closes in November."

The wholesale prices assessment for the next price cap runs between 18 August and 18 November 2024, with the announcement due to take place on 25 November. The new rates Ofgem announces on these dates will be in force from 1 January to 31 March 2025.

Cornwall Insight: October Ofgem energy price cap hike 'a blip'

Commenting on its latest set of predictions, the energy consultancy said the 10% rise in bills under the latest price cap appeared to be a bump in the road. It added that its analysis would come as small comfort to those who will struggle to afford their bills over the coming months, such as those who have had the Winter Fuel Payment taken away.

Principal consultant at the firm, Dr Craig Lowrey, said: “While households will have to endure a rise in the cap from October, our current forecasts suggest that this is a temporary blip. January to March, typically some of the coldest months of the year, often bring with them the biggest energy bills, and - while our latest forecast is welcome news - it remains subject to the volatile wholesale gas and electricity markets.

"There remains a further six weeks or so for the wholesale market to influence our forecasts, and while the negligible quarter-on-quarter drop is welcome, it must be remembered that bills will still remain hundreds of pounds above historic levels. While there is hope that a renewed focus on building a sustainable domestic energy supply could eventually lower bills as we reduce reliance on volatile imports, these benefits will take time to materialise. Meanwhile, many people are facing financial difficulties right now."

Lowrey urged the government to look into how it could "shield vulnerable consumers" - either through targeted support measures, or the introduction of social tariffs. He warned that while renewables are expected to eventually lower bills "not everybody can wait" for these savings to kick in.

Previous ideas for protecting the vulnerable have included one-off energy grants and cost of living payments - although these measures were seen as 'sticking plaster' moves. The last government also rolled out a household support fund, which Rachel Reeves could extend in her Budget.

Ofgem is currently consulting on the future of the energy price cap. It says the mechanism is likely to be unfit for the net zero age.

What is the long-term outlook for energy prices?

Although the energy consultancy has forecasted a slightly better outlook for prices in the short-term, it has said it could be several years before energy bills go back to where they were before 2020.

It has predicted that prices will remain relatively flat over the next three years, before beginning to drop away from 2028. By then, it expects improved gas supplies to be better supported by bolstered renewable energy output.

However, it says wholesale prices are likely to remain well above averages seen from the last decade, even by 2031. Once inflation is taken into account, they could still be more than 10% above the most expensive prices from the late-2010s. Cornwall Insight puts this down to a continued European reliance on gas imports.

"Tight margins for renewables developers combined with commodity prices staying comparatively high, mean substantial drops are unfortunately not currently on the cards," said the consultancy's senior modeller, Tom Edwards.

“This period of relative stability does however provide a crucial window of opportunity. As we move forward, our forecasts show continued investment in renewable energy infrastructure is paramount. By diversifying our energy mix and continuing our drive for innovation, it is clear we can unlock a future where energy affordability becomes the norm, not a fleeting moment.”

How have standing charges changed?

Energy customers pay a fixed daily charge covering the costs of being connected to a supply, such as cable and substation maintenance. The amount varies depending on where you live in Great Britain.

There has been anger about charges going up - in many areas, the charge has doubled over the past two years - and the inability to reduce these fixed fees. At present, they mean you're paying around £334 a year (£369 for standard credit customers) before you've even used any energy.

In April, Ofgem hiked the amount it allows suppliers to charge due to “increasing network costs”. The regulator recently conducted a consultation into the future of standing charges and said it is reviewing more than 40,000 responses. The outcome of this review could have a major impact on energy bills. Experts predict scrapping standing charges would see prices rise significantly.

While everyone is seeing an increase in the amount they have to pay to cover the costs of the nation's energy infrastructure, Ofgem has brought standing charges for prepayment meters in line with the rest of the market.

This move means the so-called 'prepayment premium' has ended for good, saving households with this type of meter £49 a year, while slightly increasing bills for direct debit customers. The government's Energy Price Guarantee had temporarily equalised standing charges, but expired in April.

Should I fix my energy?

Since they made a comeback in July 2023, fixed energy deals have become increasingly competitive with the Ofgem energy price cap. At the moment, while several tariffs can beat the cap, the way to approach the market depends on your attitude to risk.

Energy prices appear to be at a short-term peak, so fixing now risks locking in rates that could become uncompetitive in the New Year - especially if prices fall away as expected in 2025. But, if you value cost certainty, opting for a fixed deal means you will know exactly what your outgoings will be for the next 12 months.

So, MoneyWeek's advice is to weigh up the options on the market and assess whether fixing meets your financial needs.

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