Expert forecaster now believes April energy bills will be EVEN higher if the forecast is revised. So is it time to adopt a flat rate?

Although energy bills have fallen from the record highs of 2021, households are still paying an average of £1,717 per year for gas and electricity, with bills expected to rise in 2025.

That figure of £1,717 is the typical Ofgem price cap level, which sets energy bills for 27 million homes – around 90 per cent of households in the country.

This rate applies to a home with an average energy consumption, with a variable energy rate and payment by direct debit.

The immediate future of energy bills is positive as the price cap will rise in the new year.

But what is the future of energy bills in 2025, and when can poor households expect prices to finally drop?

How much will energy bills rise in 2025?

According to regulator Ofgem, the average energy bill will rise by 1.2 per cent to £1,738 on January 1.

That rate will apply for three months until the price ceiling is reset in April and October.

Ofgem makes no predictions about the future of the price cap. However, experts at Cornwall Insight do.

Cornwall believes the average bill will rise to £1,785 from April 2025, or almost 3 per cent.

Of this, £904.61 goes to electricity and £880.29 to gas, for normal use.

Cornwall initially thought bills would rise to £1,762 by April 2025, an increase of 2.6 per cent, but revised the forecast slightly on December 31, 2024.

The increase in energy bills in April would reflect turbulence in energy markets, the uncertainty of a Trump presidency in the US and the additional costs of changes to gas and electricity regulations in Britain, Cornwall said.

Later this year, Cornwall Insight believes the price cap will ‘fall slightly’ in October 2025, but has not published exact forecasts.

Energy company EDF believes the typical cap price will rise to £1,754 in April, an increase of 1 per cent.

Elise Melville, energy expert at Uswitch, said: ‘The sudden change from a 1 per cent increase to 3 per cent in the April price cap forecast suggests that energy prices will remain uncertain next year.’

Why is the energy bill so high?

There is a complicated web of reasons why energy prices are so much higher than they once were.

The main culprit was the Russian invasion of Ukraine, which led to a sharp increase in energy prices. Russia supplies much of Europe’s gas, oil and coal, and concerns about availability sent prices soaring.

Although Britain did not import much fuel directly from Russia (about 4 percent of gas consumption in 2021), it does import about 40 percent of its energy.

Britain was then forced to buy this energy on the open market against competing countries, driving up the price for everyone.

The high costs of purchasing energy on the wholesale market subsequently caused dozens of British energy companies to go bankrupt. These companies were forced to sell energy to consumers for much less than it cost them to buy it because most homes had fixed energy bills.

Not only have new energy contracts with fixed rates completely disappeared, but the costs of all bankrupt energy companies have been included in all energy bills.

Since then, regulation by Ofgem has also played a role in keeping the bills high. This includes a ban on energy companies undercutting each other on price levels and postponing smart meter reforms.

The cost of electricity is also driven up by a pricing system called ‘marginal pricing’, where the cost of all energy is often charged at the higher cost of gas rather than the cheaper cost of renewable energy.

The way electricity works in Britain is like a market. At the start of the day, all electricity suppliers – renewable, nuclear and gas – calculate how much it will cost them to produce a single unit of electricity. This reset takes place every half hour.

Those estimates are then matched to consumer demand, and the sources with the cheapest prices are told to start generating electricity first.

In practice, this normally means that renewable energy, such as wind and solar energy, comes first, then nuclear energy and then gas. This is because sustainable energy is much cheaper to generate, as long as the sun shines and the wind blows.

The problem with marginal pricing is that if gas is used, all electricity sold wholesale is priced at the higher gas rate, regardless of how much it costs to generate electricity or how much gas is used to generate electricity.

Even though only 5 percent of the UK’s electricity comes from gas-fired power stations at any given time, the price of that gas is used to set the wholesale price for the remaining 95 percent of electricity.

When electric utilities then buy that power at the wholesale level and sell it to consumers, this is one of the things that drives up the final cost – and the price of electricity bills for consumers.

When will the energy bill go down?

Energy bills are unlikely to return to historic standards in the coming years, Cornwall Insight believes – perhaps until the end of this decade.

The company believes energy prices will not change much until 2027/2028, after which they will fall due to the rollout of more renewable energy.

Can I take out an energy contract with a fixed rate and save money?

Households may be able to avoid the limit and save money by taking out an energy contract with a fixed rate.

At the moment, most energy deals are variable. That means they change the price, normally four times a year when Ofgem adjusts its price cap.

Fixed rates, as the name suggests, offer fixed prices for unit rates (the energy used) and fixed charges (daily fees paid regardless of the energy used).

Before the 2021 energy crisis, most energy deals had a fixed rate, with variable rates reserved for homes that had dropped out of a fixed contract and had not entered into a new contract.

But fixed rate deals have made something of a comeback, and if you can find one that’s cheaper than the price cap, you can save money on your energy bills.

Not all households qualify for a fixed rate, and the exact price paid will vary depending on energy consumption.

Furthermore, many cheaper fixed rate energy deals are not available on the open market and are offered directly to customers by their energy company.

Energy companies are free to sell these solutions only to their own customers, without disclosing these rates to the rest of the world.

If your energy company contacts you about an exclusive fixed rate, check how this compares in price to what you pay now and what you would pay in January if the price cap changes.