How much further will energy prices rise?

Published by Nathalie Bonney on 01 August 2011.
Last updated on 16 August 2011

Woman with bills

Energy prices just seem to keep going up and up. Each time one of the 'Big Six' announces another price hike, consumers hear the same thing: the energy company regrets that it has to increase energy prices, but it has no choice thanks to rising wholesale prices.

But while energy prices are set to go up this year, what will happen to them in the longer term? Read on to find out what is expected to happen to energy costs in the coming years. 

Why are wholesale prices going up?

Recent unrest in oil regions such as the Middle East and North Africa has pushed wholesale prices up further. However, energy providers bulk buy commodities at a set price. This agreed price isn't made public so it's difficult to know how much extra it costs them.

So are energy companies unfairly blaming higher bills on higher wholesale costs?

Wholesale prices have certainly gone up in the past 10 years and it's true that Big Six profits have suffered as a result of this. For example, when British Gas last sent an update to its shareholders, it revealed that profits were 50% lower than 12 months previously.

However, energy regulator Ofgem revealed evidence in its March report that energy providers are quicker to pass on price increases than they are to pass on price cuts.

Check out the Moneywise Energy Switcher to see if you could save money on your utility provider:



Will prices continue to rise?

The government has got the energy companies signed up for what Tom Lyons, energy expert at uSwitch, calls some "very aggressive" carbon reduction targets.

Energy companies claim these will inevitably push prices up - and with environmental issues taking on more precedence in future years, it's inevitable that our energy bills will cost more too.

"The more pressure there is to meet certain CO2 emissions targets, then the more expensive energy is going to become," explains Richard Hulf, fund manager of the Artemis Global Energy Fund and an expert in the oil and gas industry.

On top of this, global demand for energy is on an upward trend - and that too will push up market prices: "As we see demand from emerging countries such as China, India and those in South America grow, the more energy prices will go up and up," Hulf adds.

The UK also needs to invest considerably in new energy plants, says Lyons: "A number of nuclear plants are coming to the end of their life cycles, and some coal-fired plants will also have to close shortly because of European regulation."

It's estimated that the money needed for these changes is around the £200 billion mark; although Lyons says there is "no way" British energy providers can fund this themselves, they will still be expected to cough up a fair bit - and billpayers will therefore inevitably feel the pain of increasingly expensive tariffs for years to come.

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