Natural gas pricesMonthly natural gas prices in Great Britain skyrocketed between the second half of 2021 and 2022, reaching record levels in March, August, and December of the latter year. Although the result of an energy supply shortage that hit the entire European continent after the COVID-19 pandemic and the Russian invasion of Ukraine, the UK was particularly vulnerable due to a lack of large-storage facilities, combined with declining domestic natural gas production.
UK’s government Office of Gas and Electricity Markets (Ofgem) regulates the maximum energy price set by suppliers. Alongside this price cap, the Energy Price Guarantee was introduced in October 2022 to protect consumers from the increase in wholesale prices. It limited annual energy costs to 2,500 pounds (referring to a typical domestic consumption of a dual fuel household paying by direct debit) until July 2023, when it was increased to 3,000 pounds. From July to September 2023, default tariff consumers will be charged according to Ofgem’s price cap, set at 2,074 pounds per year. Gas prices will amount to 0.08 pounds per kilowatt-hour of gas.
Gas prices are forecast to drop abruptly all through 2023, reaching an average of 1.65 pence per therm by 2024.
Electricity pricesNatural gas accounts for 40 percent of the electricity generated in the UK, the second-largest power source in the country behind renewables. The UK’s dependence on natural gas was a combination of a quick coal phase-out campaign and inefficient nuclear power plants, further exacerbated in 2021 by unusually low wind power output and increased demand due to an extended cold winter.
In the European market, the marginal cost of the last source used to meet demand dictates wholesale electricity price. This role is often played by gas, the most expensive power source on the market. Consequently, as gas prices reached record highs, electricity prices in Great Britain also soared in 2021 and 2022. The average household electricity bill in the UK ranged between 895 and 1,099 British pounds in 2022, depending on the annual consumption. This was the highest figure ever recorded in the country.
Starting in July 2023, electricity prices will be capped at 0.3 pounds per kilowatt-hour for a typical consumption of households paying by direct debit.