We’ll outline, in simple terms, what’s been going on behind the scenes in the energy markets — and, of course, what this means for you.
At a glance
Wholesale prices — the costs for actual energy — have been rising recently, as economies around the world have begun to emerge from the first wave of the pandemic lockdown.
Non-commodity costs — which make up a large part of your bill — have also been going up. These are the costs of getting the energy to your home and other regulated policy and environmental costs, which are beyond any suppliers’ control, and can make a big difference to the overall costs of tariffs at a retail level.
Because of rising industry costs, we’re increasing our electricity prices on our variable tariff for existing Members on 4 November 2020, and for new Members joining Pure Planet from today (7 October).
Price Protection: On our variable tariff, we protect your unit rates from price increases for your first two months on supply with us. So, if you’re still in your Price Protection period, your prices won’t be affected until 4 November, or the end of your Price Protection period, whichever comes later.
This is the first price increase to our variable tariff since January 2019 — more than 18 months ago.
Our gas prices are remaining the same.
This means a yearly increase of £34 (3.8%) on an average dual fuel variable bill, up from £902 to £936.
Direct Debits aren’t changing. These are reviewed every six months, and reflect price as well as use.
Our current fixed rate tariff currently costs an equivalent £897 on average, by comparison.
What’s been happening in the wholesale market?
Over the past six months, as the pandemic has unfolded, electricity and gas prices have fluctuated. They fell sharply as lockdown took hold but have recently tended to climb upwards.
This uplift in prices can be attributed to different global factors. The recent easing of lockdown measures across the world has played a part in pushing up prices. And the efforts of some Asian countries, in particular, to kickstart their economies by ramping up industrial production have led to a rise in wholesale gas prices.
Here in Britain, the wholesale price for electricity has climbed steeply since the worst points of lockdown in April, and is up around 25% since then. Gas is up over 15% during the same period, albeit from a lower point.
Rising non-wholesale costs
As mentioned in our last blog, the exceptionally low demand over the last six months made it much harder and more costly for the national infrastructure to maintain system stability.
In addition, renewable subsidy policy costs, which ensure renewable power plants make a stable income even when electricity prices drop, increased as a result of lower wholesale costs.
Also, as these network and policy costs are shared among electricity users across the whole country, the low usage level during the early stage of the pandemic means that the costs are shared across less demand, resulting in a further increase in the unit costs for these charges.
The result of all this is that the amount of your bill which actually goes towards paying for the cost of underlying electricity or gas is reduced as a proportion of your overall bill. It’s less than 40% for a dual fuel bill, typically, and only around a third for electricity-only customers, as this Ofgem chart below shows.
In fact, in the early stages of the pandemic, the National Grid estimated that network balancing costs would increase by £500m across the industry compared to summer 2019. The charges became so unpredictably high that the government and the regulator stepped in to set up payment structures so that some of these costs are deferred into 2021 rather than charged immediately over the lockdown period. This will likely result in increased retail prices over the next 12 months.
In light of these network, policy and environmental costs rising industry-wide, profitability across the supply sector has been extremely challenged with many household names losing money.
As this Ofgem chart below shows, profits within the larger, Big 6 suppliers have been wiped out from 2019. The Big 6, in particular, have been operating under the pressure of rising wholesale and policy costs, as well as being squeezed by the Ofgem Price Cap.
So what do we expect wholesale prices to do in the next quarter?
Largely, wholesale prices are expected to increase as general energy usage goes up in winter. But, because of a resurgence in Covid-19 cases and a re-tightening of lockdown measures, huge uncertainty remains.
A key factor to the global outlook is the extended maintenance of the Australian liquefied natural gas (LNG) plant, along with the recovering demand for gas in Asia.
Asia was the main market for LNG until its economy started to slow in 2018 and dipped further because of Coronavirus this year. The gas Asia would have used has been shipped to Europe causing a knock on effect of pushing LNG prices down due to oversupply — until now.
But the recent resurgence of LNG demand in Asia has meant that deliveries of it to the UK and Europe have been declining — which, in turn, has started to drive up LNG and gas prices globally.
Oil prices reached an all time low in March. Image: BBC News
There is also a downward pressure on oil prices right now, caused by the stagnation of the global economic recovery. Libya is intending to resume oil production, and with increasing fears of a second wave of Covid-19, these factors are only adding to the longer-term uncertainty of gas and electricity prices.
How does this impact retail prices and our Members
As ever, the wholesale markets and policy world is complex. The bottom line with both of these are that prices are rising, and these will likely push up retail prices over the longer term.
Recent short term impacts have certainly pushed up prices across the retail sector — as well as on our variable tariff rate. Over the past three months retail prices across the British market have climbed by 7% overall.
It’s worth keeping in mind that at Pure Planet we aim to pass-through the costs of delivering energy to you: what we pay, you pay. This applies to the cost of the power and gas, as well as the policy and network costs.
So how are Pure Planet’s prices changing?
Members on a fixed tariff are on exactly that — it’s fixed, and the prices for electricity and gas won’t change for the duration of their fixed contract. The cost of the fixed tariff in the market changes from time to time, though. What matters is that the price you are quoted when you sign up is the price you pay for the term of your contract.
With rising wholesale prices and climbing policy costs, we’ve made the decision to put our variable tariff up, as explained. It’s electricity ony that’s moving. Gas is staying the same.
We’re announcing this change now, and giving our existing Members four weeks’ notice — twice as long as we are obliged to do by Ofgem. The change will take effect on 4 November for existing Members, unless you’ve recently joined and are still within your two months’ price protection period. The new electricity prices come into effect today for new joiners.
We’ll email everyone in the next week or so to let them know exactly what the changes mean for them.
For a typical dual fuel Member, using the Ofgem average of 2,900kWh of elec and 12,000kWh of gas a year, the increase is 3.8% or £34 a year.
We don’t increase prices lightly. But with a variable tariff it can happen, just as easily as it can move down, too.
To give you an idea, here are the average price moves to our kWh unit rates that we’ve made to our variable tariff since we launched in 2017. All these figures are for a typical household.
- Up March 2018: +5.6%
- Up October 2018: +5.6%
- Up January 2019: +8.4%
- Down May 2019: gas only -2.4%
- Down May 2020: -3.4%
The last time we increased the unit rates on our variable tariff was January 2019 — more than 18 months ago. They’ve gone down twice since then.
You’re free to move at any point, of course. You could change tariff to our fixed offer — just pop into your account online or in your app and go to ‘Tariff and Usage’ and then ‘Change tariff’ to get a quote and move across. We’d hate you to, but you’re free to leave our variable tariff at any time, as we don’t charge exit fees on this tariff — all we’d ask is you look at our fixed tariff, or our competitors’ prices before making the leap.
Compared to others in the market Pure Planet’s variable tariff has always offered great value.
And all of Pure Planet’s tariffs are fully green — 100% renewable electricity and 100% carbon offset gas — and come with great service — we’re a Which? Recommended Energy Provider 2020.
You can read more about our tariffs and join in the conversation on our Community.
Thanks for being part of Pure Planet.