Martin Lewis: Wholesale energy rates have plummeted and there are lots of myths about it – here's how it'll impact your energy bills

ITV's The Martin Lewis Money Show Live –Tuesday 10 January

You can turn on subtitles by clicking the closed captions icon in the bottom right of the video. The clip above has been taken from The Martin Lewis Money Show on Tuesday 10 January 2023, with the permission of ITV Studios. All rights reserved. Watch the full episode on the ITV Hub.

Since recording, another forecast has come out, this time from financial services firm Investec. It predicts slightly lower future prices for July and October than those predicted by Cornwall Insight, which Martin mentions in the video – though none of that changes the main point.

You can also see our Price guarantee guide for further information on what's happening with energy bills. Plus see our Struggling with energy bills guide for more on how you can get the help you need, and our Energy saving tips guide for more ways to save money on your bills.

Here's the full transcript of Martin's view on what's happening with energy prices

Audience member: "With the wholesale price of gas apparently falling, why hasn't the consumer price of gas gone down, or our electricity, which is in part, generated from gas?"

Martin Lewis: "OK, I'm going to take this pretty slowly, because it is complicated. So what I have here is a graph of the year-ahead wholesale prices [see graphic in the image below].

"Now many people on social media have sent me the day ahead price – pretty irrelevant in the UK, we don't have gas storage, we got rid of it – [that's a] discussion for another day.

"But the price that the energy retailers, who we pay for energy, what they charge – the best proxy I can give you is the year-ahead wholesale prices. It's not quite right, there are seasonal adjustments and all those things, but that's the closest we can get.

"Now, in the old days, it was 50p per therm, then in October 2021, it started to rise, and then we had the terrible conflict in Ukraine. And now look, it's come back down, which looks like good news, doesn't it? But let me just change the scale and get rid of those huge Ukraine peaks."

The idea there's going to be this great dividend from wholesale prices falling is overblown

"Now look, again, there's the old rate that we used to pay 50p a therm, roughly, and now we're still on £2 a therm. So it's four times what it used to be and our energy bills are two and a half times what they used to be.

"So the idea there's going to be this great dividend from the way wholesale prices have come down so far, I think is a little bit overblown.

"And the way that they're set, there is a time lag. So what I'm going to do now, because you want to know what's going to happen to prices. So let's squeeze this, there's the wholesale [price] under different scale.

"Now I need to bring in the energy price cap, which is the amount we were paying, and the new energy price guarantee. The scale I've got here is the cost on typical use – that's mostly meaningless. What you really need to look at is the percentage change.

"So we had the energy price cap, which is what the regulator set based on wholesale prices, including a little bit of profit for energy firms, and it was going up and up and up due to those huge hikes there [see the graph in the image below].

"Then in October [2022], the Government said from this point on the state is going to subsidise energy prices. So we're all pretty annoyed at how much we're paying. Actually, a lot of it is now paid by the state on everybody's energy bills, rich or poor, are reduced because of a state subsidy.

"In October, the price cap was due to go up 80%, the actual price we paid went up by 27%, because we got moved on to the new energy price guarantee – which is the state subsidised amount.

"And if you look, the January [2023] figure that came in was even higher. So the subsidy now is even bigger. What we have been told is from April, the energy price guarantee is going up 20%. So whatever rates you are paying now, add a fifth on top, and that's what you'll be charged from April, and next winter – unless the energy price cap goes lower than the energy price guarantee. So that's the magic thing we're looking for – we're looking for the yellow line to drop below the green.

"Now it's important to understand that the January price cap – there's a time lag – it was set based on wholesale prices from February 2022 until November 2022.

"The next price cap after that, which starts in April, is based on wholesale prices from November 2022 to February 2023.

"But as you can see, they were high and then they started to drop, although they're still pretty high. So let's have a look at the prediction – it's a week old, I admit, from Cornwall Insight – for that next period.

"It's dropped, but it's not below the energy price guarantee, even the higher energy price guarantee, and we've only got a month left. So wholesale rates would have to drop substantially more before we saw the price drop from April onwards. But let's roll it forward a little more and it's much more crystal ball gazing here.

"The next two periods, you will see that if wholesale rates stay roughly where they are, we're expecting to see the price cap drop below the energy price guarantee, so our prices will be lower than the guarantee – which sounds good BUT even that rate is more than we're paying right now."

If gas storage in Europe remains high, wholesale prices will get cheaper

"So what's the big thing we're looking out for? Well, I was talking to one of the big bosses of one of the big companies, who I can't mention, and what he said to me is this is all about gas storage in Europe.

"So if their gas storage remains high, then wholesale rates will get cheaper. If that gas storage drops, because it gets cold, wholesale rates will get more expensive. We've had those record heatwaves – well heatwaves is overdoing it – record heat in the winter in Europe, which is why wholesale rates are low.

"If that continues, then these prices can come lower. If there are big cold spells there, and they use some of that gas storage, or a lot of it, then we could see this reverse.

"But on the current prediction, what's going to happen to your prices in April, it's going to go up 20%, and then if we're lucky, from July, it's going to drop a bit, but on current predictions it'll still be more than now.

"It's not what you wanted to hear, at least you know that you're going to need to prepare. The likelihood right now is next winter, you're probably paying more than this winter.

"We can cross our fingers and hope it doesn't happen – hope they have a warm winter in Europe. But that's the likelihood. Happy New Year."