You’ve more than likely seen reports over the past few weeks of wholesale energy prices soaring to record highs. Indeed, the electricity market price passed £100 a megawatt-hour last month for the first time since the market was created, according to analysis by Imperial College London. Wholesale gas prices have risen by 250% since January, with a 70% rise since August.
In this blog, we’ll explain what’s contributed to this unprecedented rise, what it means for consumers, and what we all need to do about it.
Why have wholesale prices increased?
Pure Planet, along with all energy suppliers, pay a wholesale price for gas and electricity, which is then sold on to our Members.
Changes in the wholesale price are to be expected, as demand increases and decreases with the seasons. But prices have risen steeply this year for a combination of reasons:
- Reduced production during Covid-19 lockdowns is having a knock on effect
- A higher demand from Asia is leading to a shortfall elsewhere
- European Union carbon prices are high
- Gas storage stocks are low across much of the world – especially in Britain
- Less gas is being supplied from Russia than normal
- Lower than expected renewable electricity has been generated in the last month
- There’s been a number of unplanned outages of gas, coal and nuclear power plants.
This increase is unprecedented, exceeding the relatively low Ofgem price cap which no longer covers the true cost of wholesale energy. Right now, many energy suppliers are being forced to make a loss on the energy they sell on to their customers on variable tariffs, with some already forced out of business.
It’s like a supermarket being forced to sell a litre of milk for only 50p when it costs them £1 to buy.
Sadly, with wholesale energy prices not expected to fall for some time yet, we’re likely to see a number more cease trading in the coming weeks and months.
Why has my energy bill gone up?
For all the reasons above. The wholesale cost makes up a large proportion of your monthly bill (for a dual fuel bill, the wholesale cost accounts for as much as 40%).
What happens if your energy supplier ceases trading?
The physical supply of electricity and gas to your home is not dependent on your supplier. Energy supplies to domestic energy consumers continues, whether or not the supplier has previously purchased energy on your behalf, or even for those who are with a supplier that ceases to trade.
In the instance that your energy supplier ceases trading, you will be switched to a ‘Supplier of Last Resort’, with any credit you’ve accrued transferred to them. Your new supplier will put you on a special ‘deemed’ contract. This may not be the most cost effective option available, but you will have the chance to switch to a cheaper tariff, or switch to another supplier altogether.
At Pure Planet we want to reassure you that we’re doing everything we can to limit the impact of the energy crisis on our Members. We buy our Members’ energy in advance – this is known as hedging. We feel we’re well hedged for the winter, which means we have the energy we expect our Members will need until spring covered.
We continue to work hard to offer great award-winning service, the best digital and app experiences, and fair prices for renewable electricity and carbon offset gas, and we look forward to a more stable market returning in due course.
Is there anything I can do?
We all have a part to play in reducing our energy consumption, for the good of the planet as well as our pockets. Simple things like closing the curtains, improving insulation and draught-proofing your home can all help keep your energy bills down.
If you’re worried about paying your energy bills, remember you’re not alone and help is available. Get in touch with your energy supplier so they can help, and don’t forget that government schemes, like the Warm Home Discount, Winter Fuel Payment and Cold Weather Payments, and advice, support and tips from charities and organisations, are available.
What does the future hold for the energy industry?
There’s no doubt that the next few months will be tough for the energy industry. We at Pure Planet are involved in various industry conversations to help us all get through this challenging period together.
But beyond that, the way we produce energy needs to change too. The discussions can’t stop once the worst of the crisis has been weathered. If this period teaches us anything, it’s that we can’t rely on polluting coal and gas, or nuclear, to power our homes, nor should we.
The argument for a renewable future is clearer than ever. Wind, solar, water and geothermal energy can help us reach net zero, and eliminate many of the fossil-fuel related issues we’re facing right now that have increased wholesale prices to unprecedented levels, and ultimately left consumers out of pocket.