Energy bills are at record highs – and now experts say these might not go back to normal until the end of the decade.
If we turn the clocks back to 2018, the average household energy bill was around £1,000 a year, according to regulator Ofgem.
However, many paid far less due to the hugely competitive tariffs being offered by gas and electricity firms.
Fast-forward to the present day and the average energy bill is around £3,549 a year.
That is the level of the Ofgem price cap, which limits how much a household with average usage, paying a variable rate energy deal by direct debit, can be charged in a year.
Around 80 per cent of UK homes now pay energy bills limited by this price cap. But the question households want answered is, when will bills start to fall again?
We asked energy experts about what would happen to energy bills in 2023 and beyond.
Bills ‘will be expensive for the rest of the decade’
The bad news is that these prices will stay high for years – at least on paper.
Energy consultants Cornwall Insight and Auxilione have predicted all of the Ofgem price cap changes during the cost of living crisis fairly accurately.
Experts at Cornwall Insight say energy bills will not return to below £1,000 per year for the average household until at least 2030.
A Cornwall Insight spokesperson said: ‘We do not expect wholesale prices to return to pre-pandemic levels this decade.’
Why are energy bills so high?
Since coming out of the pandemic demand for gas has gone through the roof, but supply has struggled to catch up. It has sent prices soaring and pushed up the cost of gas and electricity for both households and businesses.
This has been compounded by Russia’s invasion of Ukraine which has led to a squeeze on gas supplies across Europe and seen analysts predict a cold winter could lead to blackouts and energy rationing.
Meanwhile, Auxilione senior partner Tony Jordan said energy bills would not fall below £3,000 a year until around July 2024.
‘We can forecast several months ahead, if not years,’ he said. ‘We can tell the numbers just don’t get back to £1,000 or anywhere near it.
‘The only thing that would change that is a catastrophic collapse in wholesale prices.’
However, that sort of collapse is unlikely as wholesale gas prices are expected to be high next year.
These prices dipped during the summer, then again in November, but are now climbing again as cold weather hits and gas demand for central heating rises.
Jordan said European countries’ gas stocks were about 90 per cent full – a normal level as we hit winter months.
But when countries go to restock these gas supplies in the spring, there will be no cheap Russian gas on offer to replenish supplies, he said.
‘We’ve always had that,’ Jordan explained. ‘That does put some fear into what happens in 2023. It will keep prices up next summer, with an additional worry for next winter.’
>> Energy saving tips: What works and what doesn’t?
You may not pay your entire energy bill
The good news is that that it doesn’t really matter what energy bill prices are on paper – what matters is what you actually pay.
The Government has effectively been paying for part of our energy bills since October 2022.
This is thanks to the Energy Price Guarantee, which caps how much consumers will pay per year for their gas and electricity.
At the moment these bills are capped at £2,500 a year – again based on a household with average levels of usage – rising to £3,000 from April 2023 until April 2024.
However, the big question is what happens to energy bills past April 2024, when the Energy Price Guarantee is set to end.
Ofgem does not make predictions about energy bills that far ahead.
However, Auxilione thinks the price cap will be £3,425 a year from April 2024, falling to £2,463 in July 2024 – though these are just rough figures at the moment.
This will leave households facing the prospect of paying sky-high energy bills without Government support.
The Government has said there will be no repeat of the current £400 per household energy bill rebate, which is paid in monthly installments and due to end in March 2023.
However, there will be additional help for people on means-tested benefits, disability benefits and the elderly next year.