UK Wholesale Energy Prices, Green Policy Costs Rise
UK regulator Ofgem says that costs have risen for suppliers in the British retail energy sector, resulting in its index being up 15% year on year in January but still lower than it was at the start of 2014 – the year the oil price fell.
It said forward gas and power wholesale prices were “significantly higher” this year, power prices rising steeply in October and November 2016, before falling back in December. The wholesale price of gas accounts for a little under half the total bill (see table).
“This was caused by tighter forecast capacity margins in electricity generation, higher wholesale electricity prices in the French market, and higher commodity prices – particularly for coal,” it said.
It said that as it was normal for the large suppliers to purchase energy for customers on their ‘standard variable’ tariffs over an extended period (up to two years or more) their prices would rise and fall more slowly than the wholesale market.
“For example, we expect that for a supplier that purchased its energy on a rolling basis over 18 months, the expected cost of supplying a dual-fuel customer would be only slightly higher than a year earlier, and still significantly lower than two years ago,” it said.
The index has also been pushed up, if to a much lesser extent, by an increase in the expected charges to suppliers associated with government programmes, particularly those supporting renewable and low carbon electricity generation.
Average household gas bill breakdown
| Wholesale costs | 46.53% |
| Networks | 22.88% |
| Environmental and social obligation costs | 2.10% |
| Other direct costs | 0.62% |
| Operating costs | 16.17% |
| Supplier pre-tax margin | 6.93% |
| VAT | 4.76% |
Source: Ofgem
The costs of the Renewables Obligation scheme, and costs to suppliers associated with contracts for difference are also expected to rise over the rest of this year as more of these contracts reach their start dates.
William Powell