Will Energy Prices Ever Go Down?


British Gas has become the latest energy supplier to raise their prices, just weeks after the Government discussed introducing a price cap on domestic tariffs. If you think it feels like one rate hike after another, you’d be right. So will prices ever come down, or should we look forward to years of increasing bills?

Wholesale energy prices make up a large part of energy bills – and are often blamed when a supplier announces a price increase. The wholesale energy market works like the stock market, fluctuating due to a number of factors, including world events and customer demand. An event such as a natural disaster or unusually cold winter can see prices soar. However, energy suppliers have ended up in hot water for increasing prices at times when wholesale costs have actually fallen.  

Energy bills are also affected by Government policy. For example, the climate change levy (CCL) – which is designed to act as an incentive for businesses to reduce their emissions – is currently charged on business energy bills. Likewise, the cost of installing smart meters will be paid for by the consumer via their bills. The Government has strict emissions targets to meet, whether we see further policy charges on our bills may well be due to how well their progress is going.

Energy bills also include charges related to the upkeep of the national grid, as well as transportation costs and supplier margins. Unfortunately for consumers, the general trend is that energy prices will continue to rise.  In the case of the British Gas rise, a BBC analysis found that the increases were actually due to costs associated with renewable energy, not distribution costs (as was claimed). 

Globally, wholesale prices are predicted to increase, and this may be felt by particularly acutely in Britain if we fail to secure a strong Brexit deal.  The global energy industry is undergoing huge changes – and this will undoubtedly have an effect on prices. This is partly due to the move away from fossil fuels and partly due to the emergence of potentially ground-breaking technologies, such as the internet of things and battery storage. These technologies are being developed in order to create a cleaner energy future, as well as keep energy prices down.

It’s unlikely that the energy grid in fifty years will bear much resemblance to the one that we see today. Recently the government, in partnership with Ofgem, announced a huge investment battery storage, part of their drive to modernise the UK energy system. The announcement was welcomed by many in the energy industry, and are said to have the potential to save consumers up to £40 billion in energy costs by 2050.

So will prices go up or down in future? That remains to be seen. However, the global energy market is certainly in a transitional phase, and transitional phases can be rocky. In time, the hope is that energy will become more affordable for all, but in the short term, we should prepare for more price increases.

Remember to keep up to date with all the latest energy news and small business advice by following us on Twitter @switchmybiz.

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