Will energy prices go down in 2023?

With another cold snap this week, we’re all thinking about the cost of our energy as we ramp up the heating and look at ways to keep energy bills low.

But bills are already at record highs, so is there any prospect of energy prices falling in 2023 as wholesale gas prices slide?

We look at what analysts say about energy prices in 2023 as well as what you will pay when the current Energy Price Guarantee comes to an end in April.

The Energy Price Guarantee - what are you paying now?

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

The Energy Price Guarantee has helped keep a lid on costs to some extent. The guarantee freezes the unit costs for gas and electricity, and means that a household with typical energy usage will pay around £2,500 a year for their energy.

The current unit rate for electricity under the Energy Price Guarantee is 0.34p kwh, and a standing charge of 0.46p. For gas it is 0.10p kwh and a standing charge of .28p.

The current model of the Energy Price Guarantee will remain in place until April 2023. After that, under new government plans, households will be shifted onto a new version of the Energy Price Guarantee, with a slightly higher cap on the unit price for gas and electricity, meaning a typical average household bill will be around £3,000, instead of £2,500 - so a little less generous than what is in place right now.

The expectation is that this ‘new’ Energy Price Guarantee will remain in place until April 2024 to help combat high energy prices and the overall cost of living.

But remember, the guarantee puts a cap on the unit price and not your actual bill, your final bill depends on how much you use.

Wholesale gas prices have dropped. Will my energy bill be lower?

Wholesale gas prices have fallen sharply, but this could take months to filter through to household bills, as energy companies snap up supplies in advance.

However, predictions from analysts at Cornwall Insight, which regularly puts out estimates for the default tariff cap, suggest energy bills for typical households have fallen to £3,208 from April, decreasing further to approximately £2,200 for July-August (Q3 2023) and September-December (Q4 2023).

This is £399 lower than previous forecasts, reflecting the recent slide in wholesale gas prices.

If the predictions are correct, then there is a chance Ofgem will set a new energy cap at the lower rate, it could mean lower bills for households in the second half for 2023 and also means the help to households will not cost the government any money from July. It could potentially also mean more energy bill support from the government to help keep energy costs low.

“The political debate is likely to centre on household bills remaining about double the level that they were prior to the recent crisis, but with much less support available. We anticipate a particular emphasis on what this means for lower income and lower middle-income households. Of course, by this stage the government may have developed more enduring reforms to tariffs to address these challenges,” Cornwall Insight said in a statement.

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.”

The role of the energy price cap

While the Energy Price Guarantee is in place until 2024, 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 now set on a quarterly basis rather than every six months.

It doesn’t directly apply to our bills, but serves as an insight into what we would be paying were the Energy Price Guarantee not in place.

More help on the way

It’s worth noting that some households will actually receive more support in 2023, which will act to keep their bills lower.

For example, properties which do not enjoy a ‘direct’ relationship with the supplier, like care home residents, residents of park homes and off-grid households, will be eligible to claim £400 support on their bills.

A further £200 will be available to households that use alternative fuels, such as heating oil.

Why are energy costs so high?

One of the big factors in the rising cost of energy is Russia’s squeeze on gas supplies to Europe. Though the UK only relied upon Russia for a small proportion of the gas used in this country before the invasion of Ukraine, it is however still connected by pipeline to the wider European market.

And Europe relies on Russia for a significant amount of its gas supplies ? around 40% ? meaning that UK suppliers end up paying a similar price to those on the continent.

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.