Will Energy Prices Go Down?

✔ The average UK energy bill will be £2,074 from July to September

✔ Energy prices are unlikely to ever drop to pre-pandemic levels

✔ UK energy prices are likely to fall slower than in Europe

Soaring energy bills have been on the minds of people across the country, and no doubt many are wondering when — or if — energy prices will go down.

We’ve answered that question, as well as investigating why prices climbed so high in the first place, and whether energy prices could climb again in the future.

Why are energy prices so high?

Energy prices are high because of multiple factors.

First, as COVID-19 lockdowns ended, prices for gas and electricity climbed as countries suddenly needed more energy.

Then came the double whammy of Russia’s war of aggression against Ukraine, which interrupted the flow of gas into Europe and meant European countries had to pay more from other sources.

Global demand for liquefied natural gas (LNG) hasn’t helped either.Europe has struggled to fill its storage, and although LNG doesn’t make up the bulk of the UK’s gas usage, it’s still essential.

And despite the UK importing just 4% of its gas from Russia prior to the war, it remains reliant on imports. More than 50% of the UK’s gas is imported, so when global gas prices go up, the UK pays more.

Our article covering the reasons for gas price increases has more information. We recommend you also check out our article about where the world will buy gas from after Russia.

Will prices go down in 2023?

Prices will go down in 2023. The average energy bill for UK customers is  £2,074 from July to September.

The cost of electricity and gas will drop again, though not significantly until 2024.

This is the first time since September 2022 that the cap set by Ofgem — the energy regulator that determines price increases and decreases — is lower than the Energy Price Guarantee (EPG).

The EPG was set up by the government in 2022 to protect customers against increases in energy costs, by limiting the amount suppliers can charge per unit of energy used.

The EPG will continue to exist, though its level for the average household will be £3,000, so it’ll act as a failsafe.

Will energy prices ever drop to pre-pandemic levels?

Energy prices are unlikely to ever drop to pre-pandemic levels. Just ask industry figures like Anders Opedal, boss of energy company Equinor, who recently said energy bills will remain above pre-pandemic prices indefinitely.

If they do, it won’t be until 2030 at the earliest, so it’s better to leave pre-pandemic prices in the past.

Even if the pandemic had never happened, or if there wasn’t an increased demand for energy after the pandemic, energy prices have still been on an upwards trajectory for decades.

However, the post-pandemic increase has been stratospheric. Ofgem increased the price cap to £1,277 in October 2021 — by January 2023, it rose to £4,279, though fortunately the EPG capped it at £2,500.

Will energy prices in the UK drop more slowly than in Europe?

We can’t reliably say energy prices in the UK will drop more slowly than in Europe — but prices in the UK did rise much faster than in the rest of Europe.

This is especially true of France, who in 2022 capped electricity price increases to 4%, which has helped keep French bills among the lowest in Europe.

The UK saw the cost of electricity increase by 65.4% in comparison, and bills for electricity and gas are set to increase by another 43% in April 2023.

Household electricity prices in the UK rose faster and higher than any other country in Europe. Even Germany, where electricity generation was hit hard by the interrupted flow of Russian gas, experienced less of a rapid price rise than the UK.

So using the evidence of faster prices in the UK compared to Europe, it’s reasonable to assume prices will drop more slowly.

The reasons energy prices will fall

The good news is that energy prices are already starting to fall, thanks to a spot of good luck and effective policy changes made in light of the conflict in Ukraine.

We’ve broken down the main reasons energy prices are going down below.

Warm winter

Europe has experienced a record-breaking warm winter, which is bad news for the climate, but a positive for reducing gas consumption.

Demand for gas across Europe and the UK in October 2022 was 27% lower than it was in October 2021. In November, it was 24% lower, and in December it was 13% lower.

Lower LNG demand in China

China is the world’s largest liquified natural gas (LNG) importer, which has proved troublesome for a Europe starved of Russian gas.

Demand for LNG in China has mercifully dropped in the winter months though, which has allowed more to be diverted to us. Europe has also expanded its storage capacity.

However, China is likely to increase its gas demands soon, as its lockdown measures, which have been some of the longest-lasting in the world, continue to ease.

Could energy prices go up in the future?

Yes, they absolutely could, because that’s the reality of a grid still heavily reliant on fossil fuels for both electricity and gas.

On the other hand, a 100% renewable UK would no longer be subject to the price fluctuations of fossil fuels. The UK wouldn’t need to worry about the cost of gas exported from another country if it was capable of making its own green hydrogen, for example.

In either case, expanding green technology such as solar panel farms and wind farms (particularly onshore wind farms), would help keep energy prices down.

The UK would need to spend just 4.4% of its total GDP to create an entirely green energy mix by 2030.

Doing so would hurt the profits of energy companies such as Shell and BP of course, which will no doubt continue to push back promises of reducing emissions as far as they can.

Summary

The extreme energy price rises experienced by the UK in the months after the pandemic and during Russia’s war against Ukraine have been difficult.

It’s encouraging to see that prices are predicted to fall, albeit slowly and at a pace that still leaves millions of UK households in fuel poverty.

There’s plenty of room for improvement. 76% of Brits say the government’s fallen short when it comes to supporting them with energy bills.

Unfortunately, the government appears reluctant to further increase the windfall tax on energy companies that continue to post record profits.

The most effective way to keep such dramatic price rises from happening in the future is to switch to more renewable energy sources — and quickly. It’s the only way the UK can truly be in control of its own energy destiny.