Is the only way up for energy prices?

Thursday, 9 July 20206 minute read

Let’s take a look at what’s been happening to wholesale prices in the past six months and what this might mean for energy prices.

Here’s what you need to know in brief:

  • Volatility in supply and demand has meant depressed energy prices as markets respond to the global pandemic
  • Wholesale prices appear to have bottomed out in April as the world was in lockdown
  • Now energy prices are on the up as the world finds its feet and could potentially rise further in the second half of the year
  • Charges have increased for all suppliers, reflecting increased grid management costs of balance fluctuating energy supply and demand
  • Supplier retail tariff prices have increased by 2.9% on average in the past three months

The charts below show base load prices for electricity and prices for gas for the past six months.

Electricity prices are on the up

Source: myBPEnergy, July 2020

Gas prices are climbing

Source: myBPEnergy, July 2020

In February, when Pure Planet published our last wholesale blog, few would have predicted the scale of the global impact Covid-19, or the economic slump in the energy industry it caused.

The world saw a rapid drop in business demand for gas, electricity and oil. This has meant that traditional fossil supply has exceeded demand and at one stage US producers paid to offload oil.

The same pricing effect happened with electricity prices in Britain over the breezy Spring Bank holiday weekend. Renewable output was abnormally high as it was both windy and sunny. Demand was extremely low as many businesses and High Streets were closed and some people took the opportunity to spend more time outdoors in the sunshine.

In Europe the warm, sunny spring weather further reduced domestic gas usage, even as many people have worked from home.

In response to the reduced demand, oil producing countries agreed to cut their production until the end of July. Looking ahead, BP has said that it thinks oil will cost an average $55 per barrel through to 2050–27% down on its previous forecasts.

The positive side of renewables’ contribution has been in carbon intensity. The UK went without coal for 67 days straight given prices were too low for it to be cost effective. The coal was only briefly fired up again to test the power stations systems.

The charts below show how carbon intensity highs in January diminishing to a low in May.

Source: 2020

Source: 2020

Globally, the energy contribution from renewables was up 1.5% in the first quarter of this year, compared to Q1 2019. And in the UK, where renewables have benefitted from a sunny and breezy start to the year, they smashed records for the first quarter, accounting for 47% of all electricity generated — up from 36% for 2019 overall.

But, with many countries around the world starting to ease lockdowns and encourage their economies back into action, wholesale market prices have been starting to pick up.

How is this affecting retail energy prices?

Here in Britain tariff prices have started to move upwards from the recent three year lows. The number of suppliers offering bargain basement cheap deals has been drying up, and prices across the market have moved up by 2.9% over the past three months.

It’s not only the wholesale costs of power and gas that have been driving up prices. Network costs have been climbing too. These are beyond suppliers’ control, but ultimately effect retail pricing. For example, the recent unprecedented amount of excess supply of energy to the grid combined with low demand on the national infrastructure has increased the cost to maintain system stability. These costs are reflected in the network charges that Pure Planet and all suppliers incur, and ultimately in retail prices.

What does this mean for you?

Pure Planet buys energy in advance — about three months for our variable tariff and twelve months for our fixed tariff. This helps smooth out both wholesale price volatility and things like network charges as far as retail pricing is concerned.

But the big question: have prices been as low as they will go? Is the only way up from here?

The data and general market trends, as we’ve discussed, are certainly pointing in an upwards direction.

But it is still early days. The pandemic recovery may take much longer than many anticipate. Energy prices may have risen a little but if economies stay sluggish, that may be it. The future, as we all know, is always uncertain.

  • We will continue to monitor pricing of our variable tariff. Though wholesale prices have moved up, we’re keeping our tariff price as is for now. Remember, though, variable prices can move up or down. We’ll always give you notice of any price rise.
  • We have recently moved rates on our fixed rate tariff: gas prices have fallen a little, and electricity prices have gone up a little. We buy much further ahead on our fixed rate tariff which allows the ability to lock in the price of your unit rate and membership fee (standing charge) for 12-months. Peace of mind and no worries upfront. We have a fixed tariff blog which talks in more detail about this new tariff (it was only launched a couple of months ago) if you’re interested in switching to it from our variable rate.

If you want to know more about our tariffs then head over to our website.

Looking after each other

Finally, a word beyond pricing… let’s talk about people. Coronavirus is changing so much. So many — too many — people are suffering the loss of loved ones. And it remains a very personal financial crisis for many.

If you need support or get into money difficulties during this time, let us know. We will do what we can to help. Log into your Pure Planet account, tap ‘Get help and support’, and ask WattBot for “help with payments” and we’ll guide you from there.

We have partnerships with two financial charities StepChange and Money Advice Trust. Both will be able to advise you independently on the best financial way forward for you.

Citizens Advice is also available to everyone and offers free guidance on financial issues.

Ofgem, the energy regulator, has also provided an update on Coronavirus here.

And don’t forget to check in with our wonderful Community. You can always chat to fellow Pure Planet Members online. We have some kind and generous Community Members who will always jump in to help others out. You can also troubleshoot in our FAQs section.

Thank you for being part of Pure Planet.

Digital Marketing Manager