According to the forecast, energy prices will fall sharply again in 2024
- Gas and electricity bills will drop from April next year, experts predict
- But consumers will still pay £1,660 a year for average energy consumption
The average energy bill is expected to fall to £1,660 next year, but the latest forecast says households will have to endure another rise in costs before then.
The average home currently pays a gas and electricity bill of £1,834 a year – the level of the Ofgem price cap, which sets prices for more than 80 per cent of homes.
According to energy regulator Ofgem, this will then rise by £94 to £1,928 on January 1.
That bill, with a maximum price of £1,928, will last until April 2024, although exactly what households pay will depend on their energy consumption.
According to energy analysts at Cornwall Insight, the price cap will fall by £268 to £1,660 after April.
On the rise: Energy bills will rise once more before falling in 2024, experts say
Cornwall Insight has accurately predicted changes to Ofgem's price cap since bills started rising at the end of 2021.
This trend is currently expected to continue into 2024, falling to £1,590 in July, before a slight increase to £1,640 from October.
The reason is a decline in wholesale energy prices since mid-November and a relatively mild winter so far, according to Cornwall Insight.
The energy market was concerned that wholesale prices could rise due to disruption from the conflict between Israel and Hamas, strikes in Australia and possible sabotage of energy infrastructure in Europe.
However, none of these issues have had a significant impact on wholesale energy prices so far.
Cornwall Insight principal consultant Craig Lowrey said: 'As households brace for energy bill increases in January, current forecasts of price falls later in the year could offer a small light at the end of the tunnel.
“The recent stabilization of international energy markets has filtered into April's price ceiling forecasts, raising hopes that this downward path will continue through the remainder of 2024.”
One-off increase in the price ceiling
Ofgem's price cap could also go up next year for a number of one-off reasons.
Ofgem plans to increase its price cap by £16 between April 2024 and March 2025, meaning the average customer would pay an extra £1.33 per month.
Ofgem has also warned that energy bills could rise by £43 a year from 2026 to compensate gas networks for the UK's net-zero drive.
The cost of supplying gas to British homes is managed by private companies and paid through energy bills and levies, regulated by Ofgem.
But these companies stand to lose money on their investments, Ofgem said this week, as gas use slows due to government initiatives such as the rollout of heat pumps.
If the government does not intervene, consumers will face higher gas bills, Ofgem said.
Why has the price ceiling become so important?
The price cap was introduced in January 2019 to prevent energy companies from overcharging their customers with variable rates.
At the time, most households had fixed-rate energy contracts and only switched to variable-rate tariffs if they did not renew at the end of their term.
But after energy bills started to rise in late 2021, gas and electricity companies responded by withdrawing all new fixed rate deals from the market.
They did so to prevent the widespread collapse that hit many power companies, which were suddenly forced to sell power for far less than it cost them to buy it.
As cheap fixed rate deals virtually disappeared, almost all homes ended up on variable rates, regulated by the Ofgem price cap.
Fixed gas and electricity deals are starting to return, but most rates are uncompetitive compared to capped prices.