Multiple factors have contributed to the soaring energy prices we are currently witnessing.
To begin with, as COVID-19 lockdowns were lifted, the demand for gas and electricity surged as countries resumed normal operations, leading to increased energy needs.
Adding to the challenge was Russia’s aggressive actions against Ukraine, which disrupted the flow of gas into Europe, forcing European nations to pay higher prices for alternative sources.
The global demand for liquefied natural gas (LNG) has also played a role in the price surge. While LNG doesn’t constitute the majority of the UK’s gas usage, it remains an essential component. Europe, including the UK, has struggled to replenish its gas storage, driving up prices.
Although the UK previously imported only 4% of its gas from Russia, it still heavily relies on imports, with over 50% of its gas being sourced internationally. Consequently, when global gas prices increase, the UK ends up paying more.
Will Energy Prices Decrease in 2023?
According to energy price analysts at Cornwall Insight, energy prices are projected to decrease in 2023. The average energy bill for UK customers from July to September is estimated to be £2,361.
It is possible that the cap set by Ofgem, the energy regulator responsible for determining price fluctuations, may be lower than the Energy Price Guarantee (EPG). The EPG, established by the government in 2022, protects customers against energy cost increases by imposing limits on supplier charges per unit of energy consumed.
If the Ofgem cap is lower than the EPG, the EPG might no longer be necessary or could be adjusted to ensure continued customer protection.
However, until at least July, the EPG will remain in effect as Cornwall Insight anticipates an energy price cap of £3,338 in April.
Will Energy Prices Ever Return to Pre-Pandemic Levels?
It is unlikely that energy prices will ever revert to pre-pandemic levels. Industry figures, including Anders Opedal, CEO of energy company Equinor, have stated that energy bills will remain higher than pre-pandemic prices indefinitely.
Even without the pandemic or the increased post-pandemic energy demand, prices have been on an upward trajectory for decades. Although the pandemic exacerbated the situation, it is better to let go of the notion of returning to pre-pandemic prices.
Furthermore, if a decrease were to occur, it would not be expected until at least 2030. It is crucial to focus on the current energy landscape rather than clinging to previous price benchmarks.
Will Energy Prices Drop More Slowly in the UK Compared to Europe?
While it is challenging to make definitive statements about energy price trends, it is evident that energy prices in the UK rose faster than in the rest of Europe.
France, for instance, implemented a cap on electricity price increases at 4% in 2022, effectively keeping French bills among the lowest in Europe.
On the contrary, the UK experienced a 65.4% increase in electricity costs. Furthermore, electricity and gas bills are projected to rise by an additional 43% in April 2023.
When considering the faster price increases in the UK compared to other European countries, it is reasonable to assume that prices will decline more slowly in the UK.
Could Energy Prices Increase in the Future?
Yes, there is a possibility that energy prices could increase in the future, primarily due to the continued reliance on fossil fuels for electricity and gas generation.
However, transitioning to a 100% renewable energy system would reduce vulnerability to price fluctuations associated with fossil fuels. Becoming self-sufficient in energy production, such as through the development of green hydrogen, would also reduce dependence on gas imports.
Expanding green technologies like solar panel farms and wind farms, particularly onshore wind farms, would further contribute to price stability.
Summary
In summary, while energy prices have reached record highs, they are predicted to gradually decrease in the coming months. However, they are unlikely to return to pre-pandemic levels, and the pace of decline in the UK may be slower compared to other European countries. The transition to renewable energy sources and increased investment in green technologies are key to mitigating future price fluctuations.