Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the details.

While we’ve all been looking at ways to keep energy bills low, there is some potential good news on the horizon - it looks as if energy prices will fall sharply in the second half of this year - with some experts saying we could see prices similar to what we had back in mid-2022.

At the end of February, energy watchdog Ofgem dropped its latest energy price cap for April - June 2023 to £3,280 - almost £1,000 lower than the January cap.

Investec is now predicting Ofgem’s energy price cap, which is revised quarterly, will be set at £1,981 for the third quarter onwards. It could fall further in the fourth quarter, with the investment firm predicting a cap of £1,966 for the final three months of the year. 

This reflects a fall in wholesale energy prices, but it’s important to note it’s just a projection at this stage. Energy markets are volatile, and we don’t know what’s around the corner. Another spike in gas prices could nullify these projections. 

Currently, households pay the price set by the government’s Energy Price Guarantee (EPG). 

Chancellor Jeremy Hunt confirmed in his Spring Budget that the government will extend energy bill support from April, meaning the Energy Price Guarantee will stay at £2,500 instead of rising to £3,000.  

If Ofgem’s price cap falls below the Energy Price Guarantee households will pay the lower rate and we could even see fixed energy deals return to the market.

The Energy Price Guarantee - what are you paying now?

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

The Energy Price Guarantee has helped keep a lid on costs to some extent by freezing the unit costs that we pay for gas and electricity; it means an typical household with average energy usage currently pays around £2,500 a year for their energy. 

The current model of the EPG was due to increase by 20% to £3,000 (based on average typical use) but will now stay at the same rate until July 2023. After that, analysts expect prices will slide further and from July, we could even start to see fixed energy deals return to the market.

What will happen to energy bills in the summer?

Analysts at Investec have updated their tariff cap to reflect current commodity prices. 

While it stressed the estimates are volatile, they are still the lowest it has published for the periods, and, if realised, will mean consumer energy prices will fall back to levels not seen since 2021. 

The analyst revised its forecasts from £2,056 previously to £1,981 for energy prices from July, and from £2,071 to £1,966 from October. 

Still, the estimates are “considerably higher than historic levels and challenging for many”.

Analysts at Cornwall Insight also predict that energy prices will fall from July 2023. 

When will Ofgem set the next Energy Price Cap?

Ofgem already announced the latest energy price cap on 27 February 2023 and will set the next one on 26 May 2023 for Q3. 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, 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 set on a quarterly basis rather than every six months. 

It doesn’t directly apply to our bills right now, 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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