If you were hoping that this month's drop in the energy price cap signalled the start of lower gas and electricity bills, you will probably be disappointed.
Energy experts are warning that pressure on household budgets caused by high energy prices is unlikely to ease in the next 15 years, with analysts at Cornwall Insight saying that prices in Britain will not shift below 2022 levels 'until the late 2030s'.
The average energy bill is now £2,074 a year - the level of the price cap set by regulator Ofgem. A typical household will pay no more than £3,000 a year for energy due to the Government's Energy Price Guarantee promise, which ends next March. Based on the difference between the earlier Energy Price Guarantee (EPG) of £2,500 and the new price cap of £2,074 for direct debit customers, the average household should save £426 a year. But the reality is that most families will save just a few pounds a month because the £400 Energy Bills Support Scheme (EBSS), which subsidised bills from October-March, has come to an end, with no sign of a repeat for winter 2023.
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The next price cap will be announced in August and kick in on October 1, and assuming predictions are accurate, the average household will continue to pay almost double the rate for their gas and electricity than before costs started to soar in late 2021. Before then, the typical household paid £1,271 a year. In the short-term, Cornwall Insight thinks average energy bills will remain at around £2,000 a year until at least next March - the latest in-depth prediction it is willing to make, but analysts thinks wholesale prices will only drop to 2021 levels by the late 2030s.
These wholesale prices affect how much consumers pay for energy, though not straightaway, as energy firms 'hedge' against fluctuating prices by buying gas and electricity months - and even years - ahead of when they actually need it. This means that our current monthly bills do not reflect today's prices, but the wholesale cost from when the supplier first paid for the energy.
Cornwall Insight said demand for electricity will ramp up in the next 15 years, when gas boilers are being phased out, and cars that currently run on electricity and diesel will be replaced by electric-powered vehicles. But gas will still be needed and prices there are due to remain high because of the ongoing Russian war on Ukraine.
Tom Edwards, senior modeller at Cornwall Insight, told This Is Money: 'It is of utmost importance that the Government and other decision-makers fully comprehend the urgent and pressing need for continued investment in renewable energy sources and innovative solutions. The time to act is now. We must invest in long-duration storage technologies, nuclear power and carbon capture usage and storage that can effectively bridge the gap between intermittent renewable generation and maintaining a consistent energy capacity, bolstering the chance of success in our transition to a sustainable future."
After the pandemic demand for gas soared, with supply struggling to catch up, sending prices through the roof. The crisis was made worse by Russia's invasion of Ukraine, which squeezed gas supplies across Europe.
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Since prices have risen, more than 80% of homes pay variable tariffs, regulated by the Ofgem price cap, with only a few people who entered long-term fixes before prices started to rise paying less. At the moment there is only one fixed energy tariff for new customers, from So Energy. Others such as British Gas, Ovo and E.On, have fixed-rate tariffs for existing customers but all are priced higher than current price-capped energy bills.
