Energy Price Forecast 2020

Several factors impact the price of gas and electricity. Market forces for example cause the wholesale price of gas to rise, which results in energy customers being charged with a larger bill.

Gas prices are impacted by supply as it is pumped out of the ground and its usage is dependent on infrastructure such as pipelines. An issue with the pumping process or pipelines can negatively impact the amount of gas available.

Electricity prices, on the other hand, are often impacted due to the continued reliance on fossil fuels such as oil and coal. These are all-natural resources that are expensive to mine or pump and most importantly are in finite supply.

Any disruption to these supplies will lead to price rises.

In the latter stages of 2019, most energy suppliers implemented price drops with the average consumer seeing a £75 reduction in their energy bills. The fall in prices then was a reaction to the reduction of the energy price cap set by Ofgem. Data suggests that 15 million UK households benefited from the cuts.

Despite those price cuts, we can expect to see an adverse reaction if the price cap is increased in 2020. The price cap is reviewed twice a year, with changes coming into effect in April and October. It is set to remain until 2020, after which Ofgem will recommend on an annual basis if it should continue, up to 2023.

The price cap will be reviewed again in February 2020, and if it is increased energy suppliers will likely raise their prices in April. Any increase to a supplier’s costs could also be passed down to customers and see them hit with higher energy bills.

*update 07/2/2020 - Ofgem has announced a lowering of the price cap by £17. For more information click here

Gas and oil supplies are more prone to the effects of geopolitics and conflicts than other resources due. Oil is often pumped in war-torn nations or in areas where tensions are high. The attack on Saudi Arabia’s oil facilities in September, for example, disrupted supplies and raised prices.

The 17-minute raid by 18 drones and three low-flying missiles caused a spike in oil prices, fires and damage and shut down more than 5% of the world’s oil supply.

In 2020 oil prices are likely to come under renewed pressure following the release of a report from the United States that shows new evidence that the attack likely came from the north, reinforcing its earlier assessment that Iran was behind the offensive.

*update 10/2/2020- Gas and oil prices have weakened as a result of the Coronavirus outbreak. For more information click here

*update 09/03/2020 - Oil prices have crashed to by 20% due to a pricing war between Russia and Opec. The price of oil was already fallen sharply this year as the coronavirus disease began to spread internationally, with demand for fuel expected to decline.

Updated 16/03/2020 - The Coronavirus pandemic has led to unprecedented measures being implemented by the world's governments in an attempt to reduce its spread.

With lock downs in effect in many nations the drive towards renewable energy is expected to take a hit. Factory shutdowns in China will lead to reduced production of solar panels, Electric vehicles and wind turbines are all taking a hit.

The massive hit to the global economy could also severely impact demand for cheaper energy which with oil and gas prices already under pressure we're likely to see increased purchasing of fossil fuels for energy production.

Updated 27/05/2020 - The Coronavirus pandemic has now killed 350,000 worldwide and has infected 5.59 million, with 2.29 million recorded recoveries.  

Updated 09/11/2020 - The Covid-19 pandemic continues to impact the world. The UK has imposed a second lockdown that the government hopes will be lifted by December 2nd. Some commentators, however, are predicting the lockdown could last until March 2021. Read more - What will Lockdown 2.0 mean for UK Energy Suppliers?

Tensions escalated dramatically on January 3rd when the USA killed top Iranian general Qasem Soleimani with a missile strike at Baghdad airport. As a result of the strike oil prices jumped higher to above $68 per barrel. If Iran follows through with its promises of retaliating against the US, we can expect prices to rise even higher.

If a major conflict does break out with Iran, we can expect oil prices to increase sharply due to the inevitable disruption to Middle Eastern supplies such a war would create.

A report released in December also raised the possibility of a renewed danger posed by ISIS. The terror group may have seen its caliphate destroyed but according to intelligence reports, the Jihadis have regrouped and are gaining strength as they take advantage of the internal turmoil in Iraq.

“They have better techniques, better tactics and a lot more money at their disposal. They can buy vehicles, weapons, food supplies and equipment. Technologically they are savvier. It is more difficult to flush them out. So, they are like al-Qaeda on steroids,” said a top Kurdish counter-terrorism official.

From Turkey earning the ire of Mediterranean nations over its plans over a gas pipeline, to Russia’s conflict with Ukraine and strained relations with the EU, volatility and potential flashpoints exist when it comes to the commodity.

Update 09/11/2020 - The Iran situation has cooled but with it looking as though US President Donald Trump was bested at the ballot box the Iranians may be emboldened. Other issues in the area such as the war between Armenia and Azerbaijan contain the very real prospect of Turkey, Iran and potentially Russia being dragged into a wider conflict. 

With the deadlock in parliament finally broken following the Conservatives resounding victory in the general election, Brexit is a go. On January 31st, the UK will leave the EU and negotiations will begin on establishing a new trade deal with the bloc.

Depending on how those talks go the UK could either retain its membership in the Internal Energy Market (IEM) or leave it. Remaining in the IEM would mean that the UK would have to stick to EU policies and rules, something that is now doubtful after Boris Johnson’s withdrawal deal no longer includes the part that says the UK will have to align with EU rules.

A departure from the IEM could lead to higher gas prices and less energy security unless a new agreement is reached.

For a deeper look at the possible consequences of Brexit on the UK energy sector click here

The government’s pledge to reach net-zero carbon emissions by 2050 will also be put into effect which is likely to put more pressure on energy distributors and suppliers to pick up the pace on decarbonisation.

Update 09/11/2020 - Brexit trade talks are still ongoing but the clock is rapidly ticking down to reach an agreement by the end of the year. With the US media calling the recent US elections in Joe Biden's favour there is growing concern that the Democrats may put pressure on the UK to reach a deal with the EU that may not be in the UK's best interests.

In the UK, one of the biggest impacts on pricing is likely to be any market interventions made by Ofgem. In December, Breeze energy was the latest energy supplier to exit the market resulting in 18,000 of its customers being handed to British gas, Ofgem’s chosen Supplier of Last Resort.

With Breeze being the ninth supplier to go under in 2019, Ofgem is looking at creating new rules to make entering the energy supplier market more difficult with tougher criteria needed to attain a license.

Under plans proposed in October, Energy suppliers could be forced to undergo independent audits of their finances under new rules aimed at reducing the number of smaller energy suppliers going bust. Smaller companies already operating could also be prevented from taking on new customers under the clampdown.

Thanks to the wealth of competition provided by smaller suppliers in recent years they have been forced to lower prices to compete. However, a reduction in the number of competitors to the biggest energy suppliers could lead to price rises for consumers.

Ofgem is expected to implement the stricter criteria for market entry in the summer of 2020.

Update - New rules were announced in the Summer and will be introduced this winter. Read more - Ofgem to introduce new standards for smaller energy suppliers this winter

Dyball can assist in navigating these new rules.

The technology being used in the energy sector has improved markedly in recent years.

The financial cost of digital transformation can be high initially, but once the systems and processes are established, savings can be made in the long run. New computer systems and CRM tools, for example, have streamlined costs for energy suppliers.

Dyball’s CRM , for example, system facilitates operational control of customer and customer-related activities for a UK energy supplier. Permission driven access determines user functionality and system structures are easily configured to the desired processes of individual UK gas and electricity suppliers.

Advancements in renewable energy technology will also see cheaper energy costs. With wind and solar becoming more efficient and contributing more to the UK’s energy mix, suppliers will see cheaper wholesale prices which they can then pass onto their customers if they wish.

Improved technology could result in lower energy prices for the customers of those suppliers who have already made the transformative leap.

Accurately predicting what will happen in 2020 is an impossible task due to so many variables. From Brexit and potential flashpoints in the Middle East to new regulations imposed by Ofgem and the performance of energy suppliers one thing is certain, it is certainly going to be an interesting year.

Dyball Associates has now introduced several new services:

DCC Adapter

Customer Switching Portal

Customer Self Service Portal

Further Reading

The Future of the Energy Sector

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