Energy bills will stay high for at least 15 years, experts predict

Energy bills will stay high until at least the late 2030s, experts now predict, putting further long-term pressure on household finances.

Analysts at Cornwall Insight, who have a strong track record of predicting energy bill changes, said ‘prices in Britain will not shift below 2022 levels until the late 2030s’.

Cornwall Insight said the UK will increasingly turn away from electricity and towards gas during this period, which will ramp up demand for electricity, and therefore prices.

For example, gas boilers are being phased out, and cars that currently run on electricity and diesel will be replaced by electric-powered vehicles.

Stacking up: Households have been grappling with soaring energy bills, which began to rise from October 2021 onwards

Gas will still be needed though, and prices there are due to remain high because of the ongoing Russian war on Ukraine.

But energy prices are dropping, and are likely to drop further. 

Wholesale electricity prices – the cost of electricity to energy firms – have fallen to £130 per megawatt-hour (MWh) from an average of around £215.43 last year.

Cornwall Insight thinks wholesale prices will drop to 2021 levels – £69 per MWh – by the late 2030s.

These wholesale prices affect how much consumers pay for energy, though not straightaway.

That is because wholesale energy costs fluctuate vastly. To get around this, energy firms ‘hedge’ by buying gas and electricity well ahead of when it is needed.

They can do this months – and even years – ahead of when they actually need it.

It means that our current monthly bills do not reflect today’s prices, but rather the wholesale cost from when the supplier first paid for the energy.

Tom Edwards, senior modeller at Cornwall Insight, said: ‘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.’

The average energy bill is now £2,074 a year – the level of the price cap set by regulator Ofgem. No home will pay more than £3,000 a year for energy due to the Government’s Energy Price Guarantee promise, which ends next March.

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.

How to save money on energy bills

There are only two ways to save money on energy bills – use less energy or find a cheaper deal.

Most households are already conscious of their energy use due to months of sky-high bills, and in any case there are fewer savings to be found in the hotter months. 

The main hope for consumers looking for cheaper energy bills will be the return of lower-priced fixed-rate tariffs.

Energy firms stopped offering new fixed-rate deals after October 2021, when prices started to soar.

Since then, more than 80 per cent of homes fell onto variable tariffs, regulated by the Ofgem price cap.

At the moment there is only one fixed energy tariff for new customers, from So Energy.

This is priced at £2,047 a year for average energy use, and is available through price comparison website Uswitch.

Three other energy firms, British Gas, Ovo and E.On, have fixed-rate tariffs for existing customers. However, none of these deals will save consumers any money, as all are priced higher than current price-capped energy bills.

How to work out if a fixed-rate deal is good value

Fixed-rate energy tariffs tend to last for 12 or 24 months, with some lasting irregular times such as 18 months.

There is no certainty what energy prices will do in the future.

However, for the next eight months energy prices are unlikely to dip much below £2,000 a year for the typical household.

If you can find a deal that is cheaper than what you pay now, it is likely to be cheaper for the next eight months, and so could be worth considering.

If you are offered a fixed-rate energy deal that costs more than you are paying now, it would of course make no financial sense to take it out.

But some may value the security and ability to budget of knowing their monthly payments are set for the period of the fixed deal, and might be happy to pay slightly more in return.

This post first appeared on Dailymail.co.uk