The writing was on the wall for energy prices in 2021 when multiple suppliers folded following sharp increases in wholesale gas prices.
Today, household energy bills are 54% higher than in October 2021 after Ofgem increased the energy price cap by 54% in April 2022.
And worse is still to come, with Ofgem expected to push up the price cap by 32% in October to account for wholesale price increases.
It means that people face energy bills at least 86% higher in less than a year.
Energy suppliers have also been caught defying the price cap and squeezing households with unjustified price increases.
Price caps are designed to limit how much suppliers can charge you per unit of gas or electricity, but they are only a guideline. If you consume more energy than average, you are at the mercy of your energy supplier.
This shock has led homeowners to try and reduce energy consumption by installing warm conservatory roofs and solar panels. However, these are unaffordable for low-income households and many middle-class households.
The question is, will things get better anytime soon?
The long term outlook for energy prices
We know that Ofgem will increase the price cap in October by around 32%, so what everyone wants to know is what to expect in 2023.
The consensus is UK energy prices are expected to increase in 2023 and 2024, and they could increase at the same rate as in 2022.
It is not unreasonable to say energy prices could be 120% higher in April 2023 than in April 2021, and this would only require a 34% price cap increase in April 2023 if October 2022’s price cap is raised by 32% as expected.
Earlier this year, Centrica CEO Chris O’Shea discussed this on BBC Radio 4, saying, “there’s no reason to think energy prices will come down anytime soon. The market suggests high gas prices will be here for the next 18 months to two years.”
Beyond 2023, the outlook for energy prices depends almost entirely on supply and demand balances in the global wholesale market. Wholesale prices are all over the place in 2022, spiking and settling down before repeating.
This unpredictability unsettles the market, and energy prices show no signs of dropping to 2021 levels. Hopes of energy prices dropping to 2021 levels anytime soon are non-existent, and we may never see those prices again. Gas is a squeezed, precious commodity, and fossil fuel prices linked to gas are also rocketing.
With war escalating in Ukraine, things are getting worse for energy prices. Russia is the world’s largest gas exporter, and if they turn off the taps, things will worsen for countries that rely on it because there is no substitute.
Whatever happens, you can do a few things to reduce your energy bills, but you will need to spend money on some of them:
- Turn all appliances off at night
- Turn your thermostat down
- Use your central heating less
- Shower rather than bathe
- Get cavity wall insulation if you don’t have it
- Get loft insulation if you don’t have it
- Cook food in a microwave instead of an oven
- Upgrade your old conservatory roof to a solid roof
If you are struggling to pay your energy bills, Citizens Advice has useful information. Don’t be afraid to ask for help if you need it – energy prices are going through the roof, and all of us are affected by them. You’re not alone.