September 11, 2023

The outlook for domestic energy prices in 2024

The outlook for domestic energy prices in 2024 remains uncertain for UK households. Global factors, government policy, supplier stability, and more will shape costs over the next two years. But based on current projections, further high price increases seem likely before potential relief.

Energy costs for British homes have already skyrocketed to record levels. The average household saw their annual gas and electricity bills rise by 54% in April when the price cap increased. And in October, the cap is set to jump another 80% on average. This will push the typical annual energy bill from £1,971 to over £3,500. Costs are being driven up by surging global wholesale gas prices triggered by Russia’s invasion of Ukraine.

Unfortunately, experts predict this trend will continue into 2024. Consultancy Cornwall Insight forecasts the price cap could hit £5,387 in April 2023 and rise again to approximately £6,616 for Q2 2024. Other analysts see the potential for £7,000 or even £10,000 in annual bills based on worst-case wholesale prices next year. This is far higher than the £1,138 average bill in 2019, creating an affordability crisis.

The outlook for 2024 depends heavily on wholesale gas and electricity costs. Global markets will dictate pricing, with uncertainty around the war in Ukraine and supply issues persisting. Any further disruption from Russia could push wholesale costs up again. But assuming no escalation, analysts expect prices to stabilise and even fall back somewhat in 2023-24 as alternative supply sources ramp up.

UK North Sea production may also increase as investment rises, improving domestic supplies. If wholesale costs drop in 2024 as forecast, this should feed through to lower retail pricing. But culture secretary Nadine Dorries has indicated the planned rise to the price cap in October 2022 may be set at a higher than-expected level to provide additional supplier funding. This could limit reductions.

Rising interest rates and inflation remain wildcards that could limit price cap decreases. Ongoing supplier failures in the turbulent market have also forced Ofgem to build wider risk buffers into cap calculations. And network costs for grid maintenance continue rising. These factors suggest that while the current eye-watering projections may improve slightly, 2024 prices will remain historically high.

The government’s support measures will be a major factor. The Energy Price Guarantee will limit the cap increase in October to 34% (£2,500) for average use. This saves £1,000 but is still double the 2021 figure. If this support continues into 2024, it may curb forecast hikes, but at a major expense to the Treasury. More targeted assistance for vulnerable groups seems likely in the long term.

Ultimately, while projections foresee partial reductions from 2023 peaks, few analysts see a major drop unless wholesale costs plummet unexpectedly. Mitigation policies and consumer trends toward energy efficiency may help slightly. One such trend is the insulation of conservatory roofs using Panel X insulated roof panels. But UK households must prepare for the reality of permanently higher energy bills in 2024 and beyond compared to the lows of the last decade. Only a sustained return to cheap gas seems likely to change this trajectory.