Will energy prices go down in 2023?

As households grapple with a big increase in their electricity and gas bills, we look at energy prices and if they could fall in 2023

woman in sweater, wrapped in green blue duvet sitting on sofa and drink hot tea
(Image credit: Getty images)

Energy prices are one of the biggest concerns for UK households right now as uncertainty around the wholesale cost of gas persists.  

Currently, the Energy Price Guarantee (EPG) means a typical household bill is around £2,500 a year. But what you pay depends on how much energy you use because the EPG only caps the unit price, not your total bill.

Yet the latest analysis predicts typical household energy bills could be lower than this as early as July this year.

Cornwall Insight (opens in new tab) says energy bills for a typical household could drop to around £2,153 for the second half of 2023. That's around £350 below the capped EPG rate of £2,500. 

On top of this, wholesale gas prices have fallen around 60% since December as a partly mild winter and efforts to maximise gas storage mitigate future shortages of Russian gas. 

It means, for the first time in almost two years, there's a chance that households could see the return of competitive fixed-price energy tariffs from July (opens in new tab).

So what does it all mean for your energy bills? We take a closer look at what you will have to pay for energy in 2023.

Will energy prices go down in 2023?

Since 1 January energy bills have risen after a surprise change to tariffs (opens in new tab) by some suppliers. While the increases are minimal for most customers, it will cost some over £100 a year more.

On top of that, the £400 energy discount will end in March 2023 and no similar additional support was announced in the Spring Budget.

It means energy bills will definitely go up for most households in April as we are losing the £66/£67 payments we've received each month since October.

Energy bosses past and present have also voiced that energy bills are likely to remain high: Anders Opedal, chief executive of Norwegian energy firm Equinor, says this will be due to the cost of transitioning to renewable energy while Tony Hayward, former boss of BP, writes in the Telegraph (opens in new tab) that underinvestment in oil and gas will leave us paying more for energy for the next decade.

But there are signs energy prices might go down.

Cornwall Insight says energy bills for a typical household could drop to around £2,153 for the second half of 2023. That's around £350 below the capped EPG rate of £2,500.

Falling energy prices may mean suppliers will finally be able to offer fixed tariffs that compete with the capped government prices. 

But even positive news about falling wholesale energy prices is limited. 

We already have to wait to feel the effects of falling wholesale energy prices because energy firms typically buy their energy ahead of time (which the industry calls "hedging") to comply with the cap. 

It means falling day-to-day wholesale prices have a limited impact in the short term.

Even if lower levels of wholesale prices are maintained, the government could still be under pressure to help households and businesses, as bills will still be high.  

Dr Craig Lowrey, at Cornwall Insight said: “While it is positive to see a drop in the price cap forecast, household bills are set to remain high. The cap’s fall below the threshold of the EPG will, if wholesale prices continue at this level, effectively see the scheme no longer costing the government. 

"We must remain cautious as the government has essentially been underwriting a volatile wholesale energy market - one which is likely to remain unstable throughout the year."

He adds: "Even if energy prices continue at current levels - which is a big if - the costs to the government over the full period of the EPG are still contributing to government borrowing and will ultimately fall at the feet of consumers in the form of higher taxes." 

What if you're on a fixed-rate deal?

It's not known yet what will happen if you’re on a fixed tariff. Customers on these tariffs had been told they will receive a discount under the energy price guarantee – but it is not clear what will happen now. You can read more in our guide to fixed energy discounts

If you are on a low fixed-rate deal, that you managed to lock in some time ago, then you should stay put as you are already enjoying a good rate.

Why are energy prices so high?

There are a few reasons for high energy bills but it is mainly driven by Russia’s squeeze on gas supplies to Europe. 

Russia's invasion of Ukraine in February 2022 led to cuts in gas supplies to Europe, which resulted in European natural gas prices soaring as the region scrambled to find alternative sources for their gas needs.

Britain actually only ever depended on Russia for a small percentage of its gas, but it is still connected by pipeline to the wider European market and Europe depends on Russia for around 40% of its gas supplies. It means that British energy suppliers pay a similar price to energy suppliers in Europe.

Price rises have been astronomical. For example, at the start of 2021, UK gas was at 38p per therm. In August 2022 it went up to 537p per therm.

As a result, dozens of UK energy suppliers went bust in 2021.

UK households have the added disadvantage of mostly having homes heated by gas boilers (85% of homes compared to fewer than 50% in France and Germany) and around 40% of our electricity is generated by gas-fired power plants.

Can I get help with energy bills? 

There's the £400 energy grant aimed at helping everyone, which all households received from October 2022. But from April 2023 there will be no energy discount. 

Other energy bill help includes: energy suppliers' hardship funds (opens in new tab), the £140 Warm Home Discount scheme and financial support via your local council's Household Support Fund or welfare assistance schemes. We explain available help with energy costs (opens in new tab) in more detail.

Ultimately, continue to trim your outgoings as and when you can because energy prices are predicted to stay high in 2023 and beyond.

It’s worth trying tricks, for example, like putting cling film on your windows to keep the heat in your home.

And of course, one of the best ways to save money on energy is to use less – we share our top tips to help cut your usage and keep bills low (opens in new tab).

Read more on energy bills

Katie Binns

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.

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