Energy Price Forecast - Beat the Price Rises

The cost of household gas and electricity is rarely out of the news – a hot topic among both the public and parliament - recent energy price rises have hit consumers twice as hard as cost increases have coincided with wage stagnation in the UK, meaning many are struggling to pay their bills.

To make matters worse, 2018 was a record year for energy price rises, and the government even introduced an energy price cap to help households struggling to pay soaring energy bills.

In an ideal world, energy price forecasts would accurately predict trends, changes and movements in the global energy market to give consumers and providers at least some indication of what to prepare for.

On the one hand, energy price forecasts should be a relatively simple science – assume they’re on the rise and you won’t be too far off the mark – but, in reality, the range of factors affecting energy make accurate short-term predictions all but impossible.

Energy price forecasts still need to be made though, and to even begin to predict where the market is headed, we first need to have an idea of what’s affecting prices.

2021 energy price rises

As you can see, energy suppliers all push up the rates of their standard variable tariffs (SVTs) to match the level of the price cap. In turn, this pushes prices up right across the board, meaning even fixed rate tariffs also cost more (but they're still better value than SVTs)

For a breakdown of previous energy price rises, go to Beat the Energy Price Rises

What affects energy prices?

There are a range of factors affect the price of gas and electricity, such as supply and demand, availability, wholesale costs, transport costs, and infrastructure maintenance.

Even things like wars and natural disasters in a country that produces gas or oil can affect the price we pay to boil a kettle, or fire up the central heating here in the UK.

This is because the instability brought about by wars and natural disasters usually leads to a reduction in production and accessibility – the 2011 conflict in Libya, for instance, caused oil prices to jump to a two-and-a-half-year high.

In September 2021, a fire cut a power link between France and Britain to squeeze an already tight electricity supply further and send prices soaring by 19% to near record highs.

The introduction of the energy price cap has also helped to push prices up, for more information, check out The Truth About the Energy Price Cap.

How does increased demand affect energy prices?

The demand for energy not only drives the whole energy system, but is arguably one of the largest factors affecting its price. Energy demand is about more than just domestic consumers, and comes from across all industries in all sectors, from fuel and transportation, to manufacturing, computers and telecommunication to construction.

How do wholesale costs affect energy prices?

The wholesale price of the raw resources, such as coal and gas, plays a big part in the price that consumers pay for their energy. These prices vary frequently on a global and European scale as countries bid to meet demand. As and when prices in the ‘wholesale’ market change, these can very quickly impact smaller supplier prices and equally those from the “Big Six” resulting in changes to the amount we pay for our home energy.

The growing adoption of sustainable energy sources is slowly beginning to erode our reliance on traditional fossil fuels, and the use of more diverse energy resources means there is less demand on any single resource, which will hopefully lead to price drops in the future.

The cost of energy has risen by 50% over the last six months, with gas prices hitting a record high as the world emerges from lockdown. This surge in fossil fuel prices is pushing up fuel prices across the board, including energy tariffs, as well as petrol and diesel.

How does the energy price cap affect energy prices?

The energy price cap was introduced to stop 'rip-off' energy prices but prices actually increased in the cap's first ever review. Although there have been fluctuations, the cost of the cap has increased by £140 since it was first introduced.

Although the cap directly affectes SVTs, it indirectly affects all other tariffs as supplier's push prices up across the board. Instead of creating a fairer deal for households, this has seen all prices bunch around the level of the cap and has arguably made things even worse.

How has the pandemic affected energy prices?

Although prices dropped during the pandemic - a decrease in industrial demand during the first lockdown saw prices plummet - they've since bounced back beyond pre-pandemic levels.

Theses pandemic-induced price rises have also had an affect on the price cap.

At the last review, Ofgem added an extra £23 on the cost of the cap to cover the additional COVID-19 costs suppliers have incurred or will incur, specifically for bad debt. This is when suppliers lose money because people simply can't pay their bills, which implies that the cap really isn't working for customers. The cap level from 1 October will include a £9 adjustment which is the remaining annualised cost that suppliers need to recover following our decision in February.

What makes up an energy bill?

Wholesale energy costs make up roughly 46.6% of your overall energy bill, while energy delivery accounts for 24.3%. Other factors which affect the price of your energy bills include government policies (10.2%), taxes (5.9%), suppliers’ operating costs (9%), and of course, the supplier’s profit (4%).

How to understand your energy bill

If you’re serious about cutting the cost of your energy bills, it makes things a lot easier if you can find your way around one - here's how to understand your energy bill. Make the switch with UK Power and start saving today.

Are electricity and gas prices going up or down?

The growth of sustainable energy sources has the potential to slow, and even eventually reverse the rise in gas prices, but it looks like nothing can stop a rise in electricity prices.

This is partly due to the fact that many of the UK’s electricity generation plants have closed down due to the EU’s Large Combustion Plant Directive, a ruling that has since been superseded by the Industrial Emissions Directive (as of January 1, 2016). Coal fire power stations are being targeted to help reduce emissions in energy generation.

But the increasing popularity and availability of sustainable energy - wind and solar power are gradually becoming more mainstream ways of generating energy - could eventually lead to lower electricity prices.

Will energy prices rise?

Energy prices have been high since a 35% spike in 2008, and price rises have barely slowed down since. So it looks as though we’re set for steady increases in the cost of energy for the foreseeable future, with increases in demand, transportation costs, wholesale prices, and government legislation all set to keep costs high.

Although the Committee on Climate Change (CCC) has confirmed that EU energy efficiency rules have been forcing down energy bills and emissions since 2008, it’s also warned that the UK needs to implement new policies to stop a complete reversal of these results over the next few years.

It warns that unless the UK moves more quickly towards electric cars and strategies to insulate millions of homes and create new forms of heating that don't foul the air or crank up climate change, then both emissions and bills will increase.

The cost of transporting gas and electricity is predicted to rise by around 5-6% and 8-15% respectively in the next few years. And consumers will undoubtedly bear the brunt of these increases as energy suppliers will compensate for any additional outgoings by raising their own prices.

An energy demand forecast can also give us an indication of cost, as prices tend to rise with demand, and it’s been predicted there will be a 35% increase in energy requirement by 2041 – although this seems a long way off, it highlights how energy prices will steadily increase.

Are energy prices going to rise in 2019?

2018 was a record year for energy price rises, as households were hit with a total of 57 increases, up from just 15 in 2017, and prices were accelerating at such a rate that the government followed through on its pledge to intervene and put a stop to what the prime minister called “rip-off energy prices”.

July 19, 2018 saw the Domestic Gas and Electricity (Tariff Cap) Act 2018 become law and give Ofgem, the energy regulator, the power to cap standard variable rate tariffs. The energy price cap came into force on January 1st, 2019, and was set at £1,137 a year for a typical dual fuel customer paying by Direct Debit, but will increase to £1,254 in April this year.

For a timeline of how the energy price cap came into effect, check out our Twitter timeline, below:

.@Ofgem announces #energypricecap to go up by £117 in April. Although #energy prices may be higher without the cap, it doesn't seem to be meeting its remit of ending "rip-off energy prices".
Here's a short thread – including #blogs – on how we got to this point.
Thread 1/15 👇

— UKPower.co.uk (@ukpower) February 7, 2019

And for more on this year's rate rises, and how you can dodge them, check out Beat the Energy Price Hikes.

The price cap has been implemented with the best of intentions, but the jury is still out as to whether or not it will actually work to give households a fairer deal. In fact, the evidence so far seems to suggest the opposite, as suppliers are increasing the cost of their fixed rate deals to levels that sit around the average rate of the price cap.

Although this means the price cap is affecting the price of fixed rate deals, switching to a fixed tariff remains the best way to beat the energy price hikes, as your rate is locked in for the duration of the deal, meaning your bills will remain unaffected by any further price rises. If your current fixed rate deal is due to end, then you could soon see a sharp increase in your energy bills, unless you make the switch to a better deal. And if you’ve never run a comparison for your home energy bills, then there’s a good chance you’ll be paying too much. By comparing energy suppliers, you could find a much better deal on your home energy.

With energy prices climbing and showing no sign of slowing down, you should also try to cut your bills by cutting your usage and being more energy efficient at home. Making simple changes to improve your efficiency can save you money, plus it’s good for the planet, too.

Being more energy efficiency can mean anything from fitting double glazing to turning the thermostat down a degree.

To find out more about boiler replacement, solar panels, home insulation and double glazing, go to our energy efficiency page, where you can also get free, no obligation quotes to help improve your home’s energy efficiency.

And for more energy saving tips, check out our energy saving advice page.