What’s happening with wholesale energy prices?

Thursday, 5 March 20205 minute read
Pure Planet

Let’s start with good news: We’ll be reducing our prices very soon

We expect to be able to announce a cut to our gas and electricity unit rates (the kWh prices) later this month.

Recent movements in wholesale market prices have been trending down, and staying low.

This means we’re able to pass on price savings on the cost of energy in turn. Expect that price cut announcement around the middle of this month, with new prices taking effect from April.

What’s happening on the wholesale energy markets?

Let’s take a closer look at what’s going on with the wholesale energy markets; as they end up determining what suppliers charge, and ultimately what it costs for us as consumers to power and heat our homes.

  • As we came into this winter, prices had been falling from much higher levels at the start of 2019, to prices more usually associated with winter.
  • And they have kept on falling. Cuts by economists to global growth forecasts, caused in part by slowing Asian markets, resulted in wholesale energy prices continuing to decline through December and January to levels which are close to historic lows. For example, in September 2018 the price of gas for the coming winter was around 70p per therm. In September 2019 the equivalent price was around 45p per therm. In January and February this year, those same therms cost less than 30p. This is unusually low.
  • Weather: It’s been unseasonably mild throughout Britain (and wet!) which has meant less gas has been used than usual. And the frequency and power of recent storms made wind the highest form of electricity generation in February, reducing the volume of gas and other fuels needed to generate electricity even further.
  • The weather has been warmer than normal across Europe and throughout parts of Asia, too, meaning less demand on gas for heating.
  • The global energy market has also played a part in helping to depress prices.
  • Russia has agreed a new deal to pipe gas into Europe, keeping the continent well stocked with supply.
  • America and the Middle East regions are also continuing to supply Europe with large volumes of LNG.
  • The political tensions in Iran over the Strait of Hormuz have receded from their peak a few months ago, meaning energy tanker shipping is back to normal.
  • And now, due to Covid-19, plummeting economic output in China — and increasingly elsewhere around the world — is putting further downward pressure on wholesale energy prices.

What does this mean for Pure Planet’s tariff prices?

These unusual combinations of events and circumstances means wholesale prices have been on a downward trajectory.

In turn, it means we’ll be able to announce a price drop to our retail tariff shortly.

The fall in wholesale gas prices, in particular, means we’re highly likely to reduce gas prices further than electricity. But we expect our prices for both gas and electricity unit rates to move down.

And as regular readers of our price watch blog will know, we keep prices under review all the time and we hedge our energy purchases several months in advance on your behalf — usually for three months, but sometimes for longer.

This hedged position buys stability… but it also means that sometimes we can’t drop our price as soon as we might like because we have to allow that hedge to run its course. That’s the position we — and many other suppliers — are in at the moment. When wholesale prices rise, of course, the opposite effect is true.

Wholesale rates are only part of the story, of course — energy wholesale costs make up around 32% of an average dual fuel bill. Before we make any change to the price of our tariff we also have to take into account the other costs in delivering energy to your home.

Despite falls in wholesale electricity and gas prices, other network and policy costs have been going up.

This graph shows bill composition for an average, typical dual fuel and electricity only user. These percentages are indicative, and will vary depending on usage and region.

As we mentioned back in December, transport costs for moving electricity and gas across the grids have increased by more than 5% in the past year while the cost of Renewable Obligation Certificates are up 27% over the last two years.

How’s the market competition?

At Pure Planet we’re very aware that the backdrop of falling wholesale prices is causing competition in the retail market to hot up.

We know there are several tariffs out there that are cheaper than our single variable rate at the moment. Many are competitively priced, especially from some of the small suppliers seeking to buy market share. And we really appreciate Members for sticking with us.

Price, as you know, isn’t the only thing to consider when you choose your energy supplier.

But, as explained above, that doesn’t stop us wanting and working to move our price down as soon as we can.

Most of the cheaper prices on offer at the moment are fixed rate deals — many for new customers only. Fixed rates usually come with a lock-in for 12 months or more.

With our single variable rate — as with some of our competitors — there’s no lock-in or exit fee for leaving. That freedom has a value.

So, when we move our tariff price, we balance all of these factors. We’ll continue to pursue overall, sustainable, value for money, of course. We believe in fair prices that are based on the price we pay for your energy. Our margin is contained in our monthly Membership fee (standing charge).

We’re working through the details now — and we’ll update you in the next few weeks.

Thanks for being part of Pure Planet.