Are UK Energy Prices Cooling Down in 2024?

As summer 2024 approaches, several pressing questions hover over everyone’s mind: Will Sir Keir Starmer replace Rishi Sunak at number 10? Will England finally score victory at the Euros? And, perhaps most crucially, will the cost-of-living crisis ever come to an end?

Recent Trends in UK Energy Prices

Amidst this uncertainty, energy prices in the UK have been well above historical averages for over two years, posing significant challenges for both businesses and consumers.

However, recent developments suggest that there might be some relief on the horizon.

In a positive turn, the Ofgem energy price cap saw a decrease of over 12% on April 1, 2024. Another reduction is anticipated in July, with a further 7% drop, providing another glimmer of hope.

Forecasting Future Price Fluctuations

Nonetheless, this relief could be short-lived. Cornwall Insight, a leading energy consultancy, foresees a significant uptick in energy bills towards the end of 2024 , driven by rising wholesale prices. The forecasted increase for the October to December cap is set at 12% above the July figure.

These price fluctuations stem from the volatile nature of wholesale gas and electricity markets, which recently hit a 30-month low in February only to climb again due to variables such as changing weather conditions and geopolitical tensions.

Despite the current downward trend, wholesale prices are projected to remain well above the past decade’s averages until 2031, largely impacted by ongoing European reliance on imported gas.

Shifts Towards Onsite Energy Generation

According to a report from Centrica Business Solutions,  of UK businesses plan to increase their onsite energy generation over the next two years.

This shift is motivated primarily by the need to mitigate energy market volatility, which has hampered growth for a third of businesses. Onsite generation not only helps firms control power costs, but also aligns with decarbonisation goals.

Despite environmental incentives, cost remains a dominant factor for businesses considering onsite generation, with 50% prioritising energy cost reductions over carbon footprint reductions.

However, investing in onsite generation offers a promising avenue for businesses to gain more control over their energy needs and navigate market fluctuations effectively.

Implications and Future Directions for Energy Costs

Further complicating the energy landscape are rising standing charges, which cover the costs associated with being connected to the supply network. These charges have doubled in many areas over the past two years.

Ofgem’s recent consultations on the future of standing charges and the energy price cap itself suggest potential reforms that could impact future billing structures.

The Long-Term Outlook on UK Energy Prices

So, what’s the overall outlook for energy costs in the UK?

It’s a bit like asking whether it’s coming home this summer: have hope, but manage your expectations!

The situation remains complex, with potential for both short-term relief and long-term challenges. As the UK continues to navigate these turbulent waters, it must continue prioritising sustainable and economically feasible energy solutions.

Pairing ongoing investments in renewable energy with a shift towards greater energy autonomy for businesses could stabilise energy costs in the future.

As a leading energy broker in the UK, we at Northern Gas and Power are always on top of the most recent developments within the sector. For the latest updates, subscribe here to our free daily market reports.

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